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Business & Money

The collapse of wholesale markets has utilities once again making the purchasing decisions, and taking all the risks.
Fortnightly Magazine - June 1 2003

to that problem out to bid, that's the kind of IRP that I can deal with."

Eisenstat explains that a regulatory approach that makes sense in today's market will provide a process for resource planning, but won't actually perform that planning. "It doesn't make the decision, but it ensures that the utility's decision-making process will result in what's best for ratepayers," he says.

Of course, defining what's best for ratepayers is a proposition fraught with disagreements over rates and ratemaking policies, plus price stability, reliability, environmental impacts, transmission siting, and creditworthiness issues. All of these questions are intertwined with issues regarding technology, regulation, and market design.

Resource Adequacy: It Depends On Where You Sit

The Northwest region, with its predominance of hydroelectric power and electric residential winter heating, faces a significantly different resource-adequacy situation than does the Southeast. A generic standard market design will not satisfy either constituency, and as a result, both oppose FERC's proposed SMD rules. Additionally, these issues incite disagreements on all sides. How RTOs should address resource adequacy is a prime example.

One attorney puts it in perspective. "We're collectively managing three sets of laws: the laws of physics, economics, and politics," says Michael Zimmer, international partner with Baker McKenzie in Washington, D.C. "You can't look at one in the absence of the others. We've lost sight of that as we've gone down the course of restructuring."

Integrated Resource Planning: A Step Back in History

State regulators developed integrated resource planning (IRP) in the 1980s as a way to bring renewable energy and demand-side management into the utility resource mix. Generally speaking, these were prescriptive programs that established specific goals for utilities to meet in procuring these alternative resources.

When utilities began contracting for long-term power supplies from independent power producers, regulators began expanding IRP programs to include competitively sourced power capacity from qualifying facilities (QF)-first renewable energy plants, and eventually cogeneration facilities using a variety of fuels.

The procurement methodology of IRP was, in most cases, competitive bidding. These programs effectively launched merchant plants into the big time, laying the foundation on which a highly attractive power plant development business was built.

IRP and competitive bidding faded into the background as the PURPA-driven independent power producer business was transformed into a large and dynamic merchant power industry. In the past five years, approximately 95 percent of the new power plants brought into service have been built outside the utility rate-base, representing more than 300 GW of capacity. Most of these facilities are merchant plants with minimal or non-existent long-term power sales arrangements. -M.T.B.

Business News Bytes

Energy Traders TXU, Sempra, Constellation Energy 1Q Earnings Impacted by Accounting Change

A slew of energy companies saw their first-quarter earnings results negatively impacted by the Financial Accounting Standards Board's Emerging Issues Task Force 2-03 decision to eliminate mark-to-market accounting for certain commodity-trading assets and changes the timing of earnings recognition for revenue. In essence, say analysts, the new rules will price energy contracts at cost rather than fair value, and forces energy traders to report earnings as they are received