Transcript 2005 Overview - Electric Power Supply Association

GETTING THE BEST DEAL FOR ELECTRICITY CONSUMERS:
THE COMPELLLING CASE FOR COMPETITIVE PROCUREMENT
John E. Shelk
President and CEO
Electric Power Supply Association
November 14, 2006
www.epsa.org
Role of Competitive Power Sector
• Nearly 40% of installed generating capacity
• Competitive sector built almost all new generation since
early 1990s – primarily natural gas
• Improved operating results at plants acquired through
restructuring – coal and nuclear
• Competitive Power’s Fuel Diversity: Coal – 36%; Natural
Gas – 27%; Nuclear – 27%; Renewables – 5%; Other – 5%
The Need for New Generation is Clear
• Demand up three times supply (2006-2015): 19 percent (141 GW)
v. 6 percent (57 GW) (NERC 2006 LTRA)
• “Uncommitted” resources to double to over 100 GW (NERC)
• Record peak demand (Merrill Lynch 7/06) (summer heat wave)
• Crunch starts 2008-2012, not at end of the forecast period
• GE Financial Energy Services: $250 billion/150,000 MW by 2025
• How to meet demand is up for grabs – multiple fuels
• Who will meet demand is also up for grabs – choices
Costs and Risks Are Rising
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Fuels – global market, infrastructure needs
Environment – Carbon, CAIR, CAMR, NSR
Labor – benefits, wages, shortages
Construction materials – ordering at once
Technology risks are high, but manageable
What system better handles costs and risks: “costplus” or “cost discipline”?
Buy vs. Build Debate is Joined
• Some say no need for competitive procurement – what are
they afraid of?
• Only rate-base can do new coal and nuclear – disagree
• Competitive suppliers are national in scope
• Case for competitive suppliers is compelling – risk transfer
• Nature of competitive procurement will vary by state
Taxpayers Protected by Competitive
Procurement, Why Not Ratepayers?
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Connecticut – sealed bid for anything over $50,000
Illinois – anything over $30,000
Louisiana – most purchases over $25,000
Massachusetts – most purchases over $5,000
North Carolina – anything over $25,000
Ohio – services over $50,000, supplies over $25,000
Rhode Island – nearly all construction over $10,000
Virginia – anything over $50,000, if practical
Credible Procurement Solicitations
• Collaborative Process
– Local utility submits recommended approach
– Multi-day, commission-facilitated collaborative meetings
– State PUC resolves outstanding issues
• Independent, Third Party Evaluator
– Performs independent evaluation
– Monitors communication between the utility and affiliates
– Benefit: Extra pair of “eyes”
– Recent solicitations – IL CC, MD PSC, NJ BPU, GA PSC
Credible Procurement Solicitations
• Fair Process Must:
– Be free from actual, apparent conflicts
– Provide all bidders similar access to information
– Require full public view of the utility decision-making process
• If the utility or affiliated entity participates, additional protections
are required
– Use of an independent evaluator – reports to commission
– Separation of utility personnel – utility proposal vs. evaluating
bids
– Utility winner must honor its bids as submitted
Competitive Procurement Pitfalls
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Don’t be dazzled by “debt equivalency”
Don’t change rules/terms in mid-stream
Don’t restrict solicitations to new builds
Don’t carve out or exempt specific projects
Don’t forget role of marketers and generators
Don’t over-compensate rate-base plants not subject to
competitive procurement
QUESTIONS?
John E. Shelk
President and CEO
Electric Power Supply Association
1401 New York Ave., NW
11th Floor
Washington, DC 20005
Telephone: (202) 628-8200
Fax: (202) 628-8260
E-mail: [email protected]
Website: www.epsa.org