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EPSA Calls for National Action Plan on Competitive Procurement

New Orleans - John E. Shelk, president and CEO of the Electric Power Supply Association (EPSA) yesterday called on participants at the National Association of Regulatory Utility Commissioners (NARUC) Annual Meeting here to fashion a National Action Plan on Competitive Procurement, to be guided by the recent Federal Energy Regulatory Commission (FERC)/NARUC Collaborative report, "Competitive Procurement of Retail Electricity Supply: Recent Trends in States Policies and Utility Practices" and comments filed by EPSA and other interested parties. The report, written by the Analysis Group, highlights best practices in the competitive procurement of electric power resources, emphasizing that strong enforcement of competitive procurement rules benefits consumers. Competitive procurement refers to the process in which electricity suppliers are permitted to bid on an equal basis for the right to supply electricity to a utility and ultimately its consumers.

Shelk commended FERC and NARUC on its foresight and advance planning on procurement issues so that the next build-out of generation can be established nationally in a way that achieves the inter-related goals of reliability, affordability, and environmental responsibility. Shelk's remarks included the following statements:

• On the report: "The 'Competitive Procurement' report is thoughtful and balanced, covering competitive procurement both in restructured states that use it for the majority of their portfolio needs as well as for vertically-integrated states that use it to fulfill incremental resources. The report clearly shows why competitive procurement provides the best deal for consumers - but it also reveals the roadblocks that stand in the way of greater use of competitive procurement."


• On competitive procurement, innovation and the Green Economy: We echo the comments of independent market monitor Boston Pacific that well-designed competitive procurement invites and accommodates new players with new technologies. It is no coincidence that competitive suppliers commercialized the ground-breaking combined cycle natural gas plant that significantly reduced fuel use and emissions. Similarly, competitive suppliers are the founders, innovators and back-bone of the various renewable energy sources that are critical to the Green Economy sought by the new Administration, Congress and state governors. In the absence of vibrant competitive procurement, entrenched incumbent generators will cling to their old technologies and slow the needed accelerated effort toward cleaner, lower carbon technologies."


• On the investment challenge ahead and regional implications: "The final Brattle Group report further shows why the work of this collaborative must next move toward developing concrete recommendations and tracking their implementation. The report says as much as $700 billion will need to be wisely invested over the next twenty years in power generation. Importantly, it documents that most of that will be needed in the South and the West - areas with the least use of competitive procurement, the highest capital costs for new generation and recently, utility requests for double-digit rate increases."


• On the drawbacks of self-build compared to benefits of competitive procurement:
"The Analysis Group report, as well as recent attempts to thwart competitive procurement in specific states, confirms that the practices outlined in the report are not self-executing and the trade-offs outlined in the report will not be properly balanced without vigorously enforced competitive procurement rules. At the core of this issue is a fundamental conflict of interest when a utility has its own generation interests to protect on behalf of its shareholders, yet makes decisions to select itself to self-build generation while rejecting existing and new generation from independent, competitive suppliers who bear more of the risks and have economic incentives that better align with consumers."

• On attempts to thwart competitive procurement: "The need for continued action - including recommendations and implementation tracking by this joint NARUC-FERC effort - is seen in recent attempts to thwart competitive procurement in vertically-integrated states even where strong rules are on the books. This occurs through unjustified requests for waivers or exemptions as well as through attempts, wisely rejected by state regulators, to force competitive suppliers of renewable and other resources to sell their plants to incumbent utilities upon the expiration of existing or new PPAs."


• On competitive procurement as a policymaking tool to ease consumer impact: "Over the course of the coming long, global and historic investment in all aspects of the electricity infrastructure, costs will undoubtedly resume their upward trend absent a major technological transformation. Policymakers are looking at all tools to ease the impact on retail rates and consumer bills. Another important tool at their disposal is the fundamental reform of the power procurement process, with greater use of competitive procurement in all types of regulatory and market regimes. It simply isn't sustainable to allow companies to select themselves on a cost-plus basis - much less do so without a rigorous, open, transparent, fair process to consider all suppliers and the cost discipline, performance track records and innovations they bring to benefit consumers and the environment."


• In conclusion: "We urge the collaborative to look at what we have already filed on model rules, the Analysis Group report and all the comments provided on that report to fashion a National Action Plan for Competitive Procurement with the same vigor and thoughtfulness that NARUC and FERC are applying to other pressing electricity-related issues that touch both state and federal responsibilities."

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.