Dan Dolan – Vice President Electric Power Supply Association September 2008

1. Dan Dolan – Vice President Electric Power Supply Association September 2008 Who Will Build the Resources for the Future? www.epsa.org

2. What is EPSA? • The national trade association of competitive power sector • Nearly 40% of installed generating capacity • Competitive sector built almost all new generation since early 1990s • New generation was largely at supplier’s risk, not at ratepayer expense • Nearly all wind generation is being built by competitive suppliers

4. Wind Projects Completed in 2008 Rate-Base Construction 13% Competitive Suppliers 87% Percentage of Total Capacity Total Capacity (MW) American Wind Energy Association, 2nd Quarter 2008 Market Report, August 5, 2008

5. Wind Projects Under Construction Rate-Base Construction 6% Competitive Suppliers 94% Percentage of Total Capacity Total Capacity (MW) American Wind Energy Association, 2nd Quarter 2008 Market Report, August 5, 2008

6. Build versus Buy:Who Bears the Risk? • Utility cost-over runs • Competitive suppliers risk management • New technologies • Large investments

7. Joint Federal/State Report • The FERC and NARUC on July 20 jointly released a report of "best practices" to ensure a fair and objective system of encouraging robust competition for utility resource needs. • The report is titledCompetitive Procurement of Retail Electricity Supply: Recent Trends in State Policies and Utility Practicesand was prepared by the Analysis Group. Available atwww.naruc.org.

8. FERC/NARUC Report Quotes • "...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, emphasis added)

9. FERC/NARUC Report Quotes • "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..." (p. 12, emphasis added) "...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, emphasis added)

10. Change the Way We Think of New Electricity Supplies

11. Credible Solicitations • Collaborative Process • Local utility submits recommended approach • Multi-day, commission-facilitated collaborative meetings • State Commission resolves outstanding issues • Independent, Third-party Evaluator • Performs independent evaluation of the bids • Monitors communication between the utility, affiliate • Benefit: Extra pair of “eyes”

12. Credible Solicitations (cont.) • Fair Process Must: • Be free from actual, apparent conflicts of interest • Provide all bidders similar access to information • Require full public review 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’s proposal vs. evaluating bids • Utility winner must honor its bid prices

13. Dan Dolan Vice President, Policy Research & Analysis Electric Power Supply Association 1401 New York Ave., NW 11th Floor Washington, DC 20005 Telephone: (202) 628-8200 Fax: (202) 628-8260 E-mail: ddolan@epsa.org Website: www.epsa.org