PowerFacts

APPA'S Proposal To Push Regional Wholesale Power Markets Backwards Puts Consumers In Peril

APPA'S PROPOSAL UNDERMINES RELIABILITY, INNOVATION AND THE ENVIRONMENT AND IS FURTHER UNDERMINED BY ITS OWN REPORT

On February 27, 2008, the American Public Power Association (APPA) issued a white paper called Consumers in Peril in which it called for Regional Transmission Organizations (RTOs) to eliminate or scale back the centralized wholesale markets that provide electricity to most of the country. However, RTOs independently administer markets that provide efficiency, economic and reliability benefits for consumers, including better environmental performance and more renewable generation. These benefits stem from the independent and transparent nature of RTO wholesale markets, which coordinate the efficient, economic and reliable dispatch of electricity. By contrast, areas of the country without RTOs have serious transmission and market access barriers.

<center>APPA'S RECOMMENDATION TO ROLL BACK RTO-ADMINISTERED CENTRALIZED MARKETS UNDERMINES THE RELIABILITY OF LARGE PORTIONS OF THE NATION'S POWER GRID - AND APPA ADMITS AS MUCH.</center>

The North American Electric Reliability Corporation's (NERC) 2007 Long-Term Reliability Assessment 2007-2016 issued in October 2007 confirms that every region of the country, including those served by RTOs with centralized wholesale markets, will need to make substantial investments to keep electricity supplies above the peak reserve margins set for reliability. The report noted that some RTO and non-RTO areas will fall below those levels in the next two to three years, while the rest do so later in the planning period.

Competitive electricity suppliers are making plans for necessary investments, and moving forward with concrete implementation steps, in light of this urgent time frame and doing so based on the existence of these centralized wholesale markets. While targeted improvements to RTOs can and should be made, as the Federal Energy Regulatory Commission recently proposed, the APPA proposal to dismantle existing markets is neither constructive nor helpful to investment.

APPA's own report (page 28-29) concedes that its white paper only presents a broad outline of its proposal and that a more detailed version will not be forthcoming until later in 2008. The report also says that implementation "would take time" with "[m]any thorny transition issues [that] would have to be resolved." The report also cited the existence of "substantial institutional and political obstacles" that would require "customized application [â€¦] in each RTO." All of this would clearly take too much time without any evidence that doing so would bring benefits to consumers.

There is no claim and no evidence in the APPA white paper that the proposal it offers to rollback RTO functions would actually lower wholesale and retail electricity prices, much less do so consistent with maintaining the investments required to maintain reliability and improve the environment.

<center>APPA'S CLAIM IN THE WHITE PAPER THAT COMPETITIVE POWER SUPPLIERS ARE NOT MAKING INVESTMENTS IN NEW CAPACITY IS PROVEN TO BE UNTRUE - AS SHOWN BY APPA'S OWN DATA.</center>

In the same month that it issued the RTO white paper, APPA issued APPA Report on New Generating Capacity: 2008 Update. The APPA capacity report (pages 8-9) documents that the share of plants under construction has shifted towards competitive suppliers. It noted that in 2007 two-thirds of the plants under construction were by regulated utilities, but by 2008 "the share is distributed almost evenly between regulated and unregulated entities." Most importantly, this occurred because "the non-utility generator (NUG) capacity increased by more than 9,000 MWs between the 2007 and 2008 reports."

The APPA capacity report shows that the share of new plant construction coming from investments by competitive suppliers is very likely to increase in future years. This is because, as APPA itself reports, 80 percent of permitted plants not yet under construction, 58 percent of the plants with a pending application, and 72 percent of proposed plants are those from non-utility generators.

APPA claims that long term supply contracts are difficult to obtain on terms that APPA finds reasonable (page vi). The report later admits that "price forecasts become less reliable that far out and risks increase correspondingly" - which helps explain long term power prices in the forward markets.

APPA claims that prices are higher in restructured states because of RTO-administered markets (page 1). However, it later acknowledges that other factors impact costs among regions (page 7), not to mention no attempt was made to adjust price data from various regions for different fuel mixes and thus different impacts of higher natural gas prices and other costs across various regions.

APPA'S Proposal To Push Regional Wholesale Power Markets Backwards Puts Consumers In Peril

CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.