EPSA says capacity markets show early promise for consumers.May 7, 2008 -
According to report released by EPSA, current designs of long-term capacity markets in PJM Interconnection and ISO New England have produced promising initial results and require additional time to allow markets to work and to make any incremental refinements. Bates White report examines American Forest and Paper Association's proposal, which assumes that there is need for another new market design, in light of positive indications that current power markets are working and gaining momentum.
EPSA Says Capacity Markets Show Early Promise for Consumers and Reliability |
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Electric Power Supply Association
1401 New York Avenue
Washington, DC, 20005-2110
USA
Press release date: May 6, 2008
"We cannot afford to be diverted or short-sighted about electricity when climate change and the need for new generation tell us we need long-term solutions that will require substantial investments."
WASHINGTON, D.C. - The current designs of long term capacity markets in the PJM Interconnection and ISO New England have produced promising initial results and require additional time to allow markets to work and to make any incremental refinements, according to a report released by the Electric Power Supply Association (EPSA) today in advance of a Federal Energy Regulatory Commission (FERC) Technical Conference on Capacity Markets tomorrow. The report, "An Assessment of the Financial Performance Obligation Proposal by the American Forest & Paper Association," was prepared by the national economics consulting firm Bates White, LLC.
"Although still early in their implementation, capacity markets in New England and PJM already have produced significant growth in demand response, avoided the retirement of existing generators, reduced exports of local resources to neighboring markets and encouraged development of new supply resources," said John E. Shelk, president and CEO of EPSA. "These capacity markets are just now being fully implemented after years of development with stakeholder input," he said.
Shelk said, "Improvements can be made, but skeletal proposals to turn capacity markets upside down and start over, such as those offered by AF&PA and Portland Cement, will only hinder investment by increasing the uncertainty over how electricity will be valued in the future, at a time when investment must move forward."
The Bates White report examines the AF&PA proposal's assumption that there is need for yet another new market design, in light of the positive indications that current power markets are working and gaining momentum. The report analyzes the fundamentals of AF&PA's Financial Performance Obligation (FPO) proposal and states, "The proposed mechanism creates perverse economic incentives for generation suppliers to de-list or export their capacity resources, especially in high LMP areas, where new capacity is needed most. In addition, FPOs will require participating generators to aggregate and absorb all financial risks without providing commensurate compensation. Not only will this increase the cost of financial hedging and thus raise costs in the short run, it also will reduce the economic incentives for new generation and demand response investments," the report concludes.
Shelk said, "PJM and ISO New England serve tens of millions of people. We cannot afford to be diverted or short-sighted about electricity when climate change and the need for new generation tell us we need long-term solutions that will require substantial investments. Any changes should make pricing mechanisms more reflective of economic realities imposed on all of us by today's global economy, not less. Consumers need to be empowered to address these realities, not led to believe they can be avoided."
"An Assessment of the Financial Performance Obligation Proposal by the American Forest & Paper Association," is available on the EPSA Web site under "Positions and Filings/Studies and Reports."
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. EPSA seeks to bring the benefits of competition to all power customers.
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