Transcript New Baseload Generation-

New Base Load
Generation in RTOs-Time to Get Real
Susan N. Kelly
VP, Policy Analysis and General Counsel
American Public Power Association
NARUC Summer 2006 Meeting
Public Power’s Business Model
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We retain (in fact, embrace) the obligation to
serve our end use customers
We try to obtain the best portfolio of wholesale
power supplies, be they owned, purchased, base,
mid, peak, coal, gas, renewable, you name it
We aim to serve our customers at the lowest
possible cost consistent with high reliability and
environmental stewardship
We are not-for-profit, with no separate class of
shareholders to satisfy
Public Power Systems and New Base
Load/Renewable Generation
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9,955 MW of new public-power owned coal-fired
generation proposed to go in service by 2013
Additional long-term power purchase
agreements with other suppliers for coal,
renewables
Looking at biomass, solar, other renewables
(CREBs); even looking at nuclear
Proceeding in RTO and non-RTO regions
What Is Needed to Support New Base
Load and Renewable Generation?
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“Markets” don’t support such new
generation, long term obligations do.
If projects are not supported by the longterm obligation of the owner/customer to
take power, financing is much more difficult
This presents an urgent problem for retail
choice jurisdictions (many of which are in
RTOs)—who can sign on the dotted line?
What Is Wrong With This Picture?
(From July 24, 2006 “Public Power Daily”)
Massachusetts agency proposes new power plant
The Massachusetts Municipal Wholesale Electric Co. said July 20 it wants
to build a 280-MW power plant in Ludlow, Mass., to beef up supply
resources for its 26 member cities. The joint action agency is proposing
construction of a natural gas- and oil-fired plant at its Stony Brook Energy
Center, home to MMWEC’s existing 520-MW Stony Brook plant. The site
already has pipelines, transmission facilities and other infrastructure
needed to support the new unit, which is planned for operation in 2010. . . .
The proposed unit “is one small power plant for New England but a large
and crucial part of the supply for public power in Massachusetts,” said
MMWEC General Manager Glenn O. Steiger. “With MMWEC and the
region facing power shortages in the near future, and few new plants
under development, building a new unit is a practical and economic
choice for municipal utilities,” he said.
[Hint: New England added 11 MW of new generation in 2005, per FERC.]
Retail Auction Mechanisms Are Not
Enough to Support New Investment
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From November 4, 2005 Fitch Report,
“Stimulating Generation Additions in
Deregulated States”:
“The short tenure of [1-3 year contracts under a
New Jersey-style auction] does not provide an
assured recovery of the investment over the full
life of the unit. In fact the time needed to build a
new power plant could equal or exceed the
duration of a New Jersey-style auction contract.”
LMP “Price Signals” Are Not Enough
to Support Such New Investment
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Original rationale for “Day Two” RTO markets with
locational marginal pricing (LMP) was that
generators would get “price signals” as to where
they should locate new generation
Even proponents of Day Two markets have
acknowledged this did not happen
Considerable unhappiness among my members
in RTOs with the operation of Day Two LMP
markets—but that is another presentation…..
Locational Capacity Pricing—the
“Next Generation” of Price Signals…
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Now RTOs are proposing “second generation”
locational capacity pricing mechanisms (FCM,
RPM) in the hopes of stimulating needed new
generation investment
But none provide an up-front, guaranteed revenue
stream 20-30 years into the future, or even close
My members see them as an expensive
experiment based on faith in locational “market
signals” that already have failed once to produce
the required results, despite big promises.
From a Member in An RTO With
Retail Choice and A Locational
Capacity Market…
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“ ‘Market signals” are not the reason that
[various generators] have built generation
[in our service territory] over the past few
years, nor is it the reason that [a new
developer] will be building a new 350MW
CC unit. . . These facilities have/will be
built for one reason – [our] willingness to
enter into PPAs of sufficient duration to
satisfy the developers.”
RTO Regions (Especially Retail
Choice Jurisdictions) Must Act
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Fitch Report suggests “possible alternatives”
 Carve-out for new generation with assured
cost recovery for owners of such generation
 State-provided loan guarantee for new
generation projects
 Return to a regulated market
 Continue with competitive markets (notes
possible higher price volatility and increased
supply disruption)
Day Two RTOs Are Not Supportive of
Our Business Model
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Financial rights transmission model exposes
members to unhedged transmission congestion
No long-term rights are currently available to
support new base load generation--big
development problem we hope will soon be
addressed
Capacity markets threaten to sweep us in even
though we have adequate generation resources—
caught in a paradigm designed to address
problems created by retail choice/RTO markets
But in a Perverse Way, We Are
Responding to Market Signals….
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High prices and volatility in RTO-run DA
and RT markets appall us
These prices “bleed” into bilateral markets,
resulting in unacceptable price offers
Building generation close to home when
possible to avoid transmission congestion
Building/buying long-term power supplies to
decrease reliance on wholesale markets