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Finding the 'Sweet Spot'

Fortnightly Magazine - May 2008

hydro, and imports of power generated by those types of resources through our neighbors to the north.

Fortnightly: And that doesn’t inject you right into the middle of the fuel-choice debate?

van Welie: It’s educating policymakers about the implications regarding certain resource choices.

For example, one of the things that came out of this analysis for New England was that if we want a lot of renewable resources in our system, we’re going to have to build more transmission to get to it. That’s because, for the most part, our renewable-resource potential is distant from the demand centers... in places where we do not have robust transmission infrastructure.

So the scenario analysis discussion helped reveal that and, in fact, triggered a discussion we’re having this year. The discussion is focused on transmission investment to enable development of renewables, not only to meet environmental requirements, but also to allow us to address some of the economic implications of the resource mix that we have at the moment.

Fortnightly: It sounds like the concept of an ISO as a neutral manager of markets is a difficult one to hold to.

van Welie: Our role is to provide the information to market participants, and to the states. Part of our role is to give everyone the same information so there’s a level playing field. And wholesale markets in my view represent the preferred model going forward to tackle climate change and the other environmental imperatives at both the state and national levels.

In the old world, where the technology was relatively stable, a cost-of-service, regulated model was appropriate, though there were some efficiency problems with that model. But if you think about the world we face in the future, it’s very clear to me, and to many in the industry, that it’s going to be very difficult to predict which resource is going to be the winner 30 years from now.

If you had a crystal ball, you could make the decision today to go ahead and build lots of that certain resource—and you would have solved the problem. And you could do so using a cost-of-service model. But if you don’t know what the right resource choice will be for the next 30 to 40 years, the industry is better off leaving that risk to the market. Consumers will end up having to pay the efficient cost of investment, but they will not be on the hook for the mistakes that are made. That’s one of the real powers of the wholesale market approach.

We would be fooling ourselves to think that any single company has the answer to these problems.