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FERC/NARUC Collaborative Outlines "Best Practices" For Competitive Procurement

The Federal Energy Regulatory Commission (FERC) and the National Association of Regulatory Utility Commissioners (NARUC) on July 20 jointly released a report as part of their collaborative dialogue on competitive procurement. The report, titled Competitive Procurement of Retail Electricity Supply: Recent Trends in State Policies and Utility Practices and prepared by the Analysis Group, offers a list of "best practices" to ensure a fair and objective system of encouraging robust competition. EPSA urges states to implement the report's best practices and adopt competitive procurement rules if they are not already in place to provide consumers with the best possible deal.

• "Because the utility's (and/or its parent's) financial interests may not be aligned with those of its customers when the utility selects from among the options, extra care is needed to prevent improper self-dealing by the utility. Best practices under these circumstances require a higher degree of regulatory supervision and scrutiny, such as the use of an independent monitor tasked to be the eyes and ears of the regulator and to help bolster the procurement's fundamental fairness and objectivity." (p. 12)


• "...because the large capital investments necessary for development of these types of resources pose potentially valuable opportunities for utilities to enter new resources into rate base, commissions should be aware that utilities may attempt to shield such projects from competition even in situations where market processes are applicable. Despite these challenges, the potential economic gains from imposing the market discipline of competitive procurements on development of capital-intensive and advanced technologies may be great." (p. 19)


• "Procurements must include appropriate safeguards to prevent undue preferential treatment of any offers, to ensure that procurements are implemented as designed, and to ensure that unforeseen circumstances are addressed in a manner that is fair and fundamentally consistent with the competitive intent of the process." (p.ii)


• ""...as many states have determined, the benefits of [independent monitors of competitive procurements] seem to outweigh these costs in most instances, and are a necessary element of a credible process where the utility itself has a financial stake in the outcome of the competitive procurement itself." (p. 22)


• "If a commission decides to rely on competitive processes, its own actions to enforce fundamental fairness objectives and uphold any prior commitments to use markets are a critical component of the process of identifying the 'best' retail supply for utility customers." (p. 7)


• "Participation by suppliers, commissions, the public, and independent monitors can be important to ensuring a fair and objective process. Such participation early in the process can also help to avoid (or at least lessen) later regulatory disputes by providing opportunities for differences of opinion, misunderstandings, or information problems to be resolved ahead of the competitive solicitation itself." (p. 20)


• "When considering whether to allow utilities to use some form of risk-adjustment adder to compare contracts against self-build options in the context of competitive procurements, commissions should be mindful of what they already know in general - that is, that the inferred debt adjustment made by credit agencies is not the only impact on credit ratings from a utility signing a PPA." (Appendix C, p. 8)

The full report can be found at http://www.naruc.org/resources.cfm?p=141

FERC/NARUC Collaborative Outlines "Best Practices" For Competitive Procurement

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.