Electric Resource Adequacy

1
Electric Resource Adequacy Considering
Other Critical Success Factors besides Capacity
Market Design

• Susan Tierney
• Presentation to
• Massachusetts Restructuring Roundtable March 18,
  2005

2
Context for my remarks

• Paul Joskow, MIT resource adequacy from
  economists point of view
• Dave LaPlante, ISO-NE resource adequacy from
  NEs point of view
• My remarks critical success factors for
  assuring resource adequacy
• Next panel LICAP Promises and Potential
  Pitfalls Stoft, Daly (NStar), Corneli (NRG),
  Austin (Maine)

3
Critical Success Factors for Resource
Adequacy

• What factors are necessary for its success?
• Entry issues siting the infrastructure
• The demand side activating this market
• State preferences aligning them with markets
• Federal/state tensions keeping them at bay
• Market monitoring enabling markets, curbing
  abuses

4
Ease of entry G T Planning and Siting

• Can required capacity get needed approvals?
• State reviews of facility proposals
• Tensions over markets versus administrative
  analyses in determining need?
• Valuing out-of-state needs in state reviews?
• Aligning siting reviews with signals set by other
  policies and processes (e.g., LICAP, RTEP, RFP)?
• Using need analysis to constrain entry?
• Tussles over federal preemption and states
  rights?
• Convergence of gas facility projects with
  electric market requirements and siting tensions?

5
The Demand Side Activating this market

• Capacity markets (bilateral, spot) work best
  with a viable demand side
• Demand and supplies are both needed
• Non-vertical demand curve (e.g., willingness to
  pay)
• Capacity on call (e.g., load shedding for pay)
• Critical success factors for enabling demand
  markets
• Comparable compensation for comparable resources?
• Bilateral (e.g., contractual) and spot market
  resources?
• Impact of free calls on demand-side capacity
  (except in dire emergencies)?

6
State resource preferences Aligning with
regional markets

• Policy directives for resource preferences
• Various state policies/preferences affect
  resource decisions and portfolios, e.g.,
• Procurement procurements (e.g., forward
  contracts)
• Content requirements (e.g., RPS)
• Emissions markets (e.g., carbon (RGGI))
• Ownership requirements (e.g., divestiture, no
  build)
• Moratoria (e.g., underwater T, wind, LNG)
• Retail pricing and metering policies (e.g., time
  of use)
• Reliability standards (e.g., lt or gt regl MW
  standard)
• least-cost reviews (e.g., all resource
  comparisons)
• Consider whether and how best to align design/
  administration of such policies with resource
  adequacy approaches

7
Federal/states tensions on policy keeping
tensions at bay

• Traditional state role in utility cost-recovery
• Reviewing utilitys power purchases/ investments
  to determine what/how to include in retail
  rates
• Prudent, used and useful investments (G and T).
• Prudent power purchases, demand-side and DG
  actions
• Recent federal/state tensions example
• Who has rights to transmission capacity embedded
  in retail rates?
• Who decides whether an asset should or may be
  acquired by a utility (e.g.,
  FERCs safety net concerns (Cinergy)), or
  whether to approve affiliate transactions arising
  from state-supervised utility actions (e,g.,
  Allegheny)
• What actions (e.g., change in resource status)
  triggers FERC reporting by holders of
  market-based wholesale rate authority?
• Implications of NARUC resolution on resource
  adequacy, FERC and the states?

8
Marketing monitoringEnabling markets, curbing
abuses

• The structure of market design (including
  capacity markets) intersects with MM/M
• If capacity markets are properly structured,
  there may be less need for certain types of MM/M
  measures, and vice versa.
• Types of structural market design elements that
  can affect MM/M
• Forward contracting amounts, requirements
• Design of any mechanism for true-ing up revenues
  in capacity market
• Viability of the demand response function

9
Summary thoughts

• Resource Adequacy Policy is more than just the
  RTOs Capacity Mechanism
• Resource adequacy costs are long-standing element
  of provision of retail service (included in
  rates)
• While RTO policy is critical element in assuring
  adequate resources, so are other factors
• Allowing timely infrastructure siting focused on
  envl and site-specific issues
• Ensuring an active demand-side market
• Aligning any state policy preferences with
  markets
• Keeping federal/state relationships constructive
• Aligning market monitoring with market structure

10
Susan F. Tierney, Ph.D.Managing
PrincipalAnalysis Group, Inc.111 Huntington
Ave., 10th FloorBoston, MA 02199ph
617-425-8114fax [phone]stierney_at_analysisg
roup.comwww.analysisgroup.com