Competitive wholesale power market still needed, draft report says


NEW YORK, NY, Sept. 20, 2002 -- Standardized markets and uniform pricing policies are among the practical remedies that can reduce uncertainties currently hampering development of a nationwide, competitive wholesale market for electricity, said Richard C. Green, Jr., chairman of Aquila, Inc. and a member of the Secretary of Energy's Electricity Advisory Board (EAB).

Green recently outlined draft recommendations submitted by the Board's Subcommittee on Electric Resources Capitalization Concerns, which he chairs, during a public meeting of the EAB in New York.

"The right combination of physical investment, market structure and regulatory policy can ensure that consumers are able to reap the economic benefits of a competitive wholesale market for electricity," Green said. "There's understandably a lot of skepticism right now in the wake of recent experience, but that experience can teach us a great deal about what needs to be changed. Properly conceived, competition lowers consumer costs, improves efficiency and fosters technological innovation.

"Today's lack of certainty throughout the electricity industry has driven capital away from investment in needed energy infrastructure. This subjects consumers and businesses to higher prices, lower reliability and slower economic growth. It's necessary to restore certainty and clarify policy objectives to encourage capital investment."

The Subcommittee's draft report recommends reducing the risk involved in developing new generation capabilities, using risk mitigation products similar to those used in banking and agriculture, and adopting state and federal policies, such as performance-based rates, that lower utilities' cost recovery uncertainty.

It also supports repeal of the Public Utility Holding Company Act of 1935 and its replacement with more productive approaches to consumer and environmental protection, as well as reform of the Public Utility Regulatory Policies Act of 1978.

The draft report also supports integrated, long-term multi-emission legislation to improve environmental performance of utilities and to coordinate their long-term capital investment.

Green said the Subcommittee endorses recent efforts by the Federal Energy Regulatory Commission (FERC) to standardize market design and pricing policies, which he termed "a giant step toward removing uncertainty." In addition, the deployment of Regional Transmission Organizations (RTOs) and expansion of independent transmission providers under the jurisdiction of RTOs will ensure regional planning to meet long-term consumer needs.

"The nation has a roadmap for the physical grid that is needed," Green said. "Now we need a policy roadmap. Without a properly structured market, industry assets will not be fully utilized."

A third and vital part of the effort to establish competitive markets must address governance and ethical issues, Green said. These would be addressed in detail by the Electricity Advisory Board's proposed new Subcommittee on Standards of Conduct and Corporate Practices.

"You can have assets and good market structure, but without appropriate conduct on the part of the corporate community there will never be the necessary investor confidence in this important sector of our economy. Our subcommittee identified this as an important and necessary part of the equation.

"The Subcommittee on Electric Resources Capitalization Concerns believes that an affordable and reliable electricity supply is essential to our economy and should be the primary goal of national electricity policy. We believe that the competitive markets are the most effective means of achieving this goal. Therefore we recommend that the nation continue on the path to regional competitive wholesale markets and finish the job started with FERC Order 888 in order to reap the benefits."

The full text of the report on capitalization concerns is available on the EAB website at http://www.eab.energy.gov/. Click on "What's New," then under the heading "Request for Public Comment" click on the report title.

The Electricity Advisory Board was established late last year by Energy Secretary Spencer Abraham to provide advice, information and recommendations on a range of electricity issues, including electricity supply in the Western United States and national infrastructure security under the terrorist threat, as well as DOE policies and programs.

Members of the Electricity Advisory Board represent a broad spectrum of the industry, including generation, transmission, distribution, regulators, consumers and environmental experts.

Based in Kansas City, Missouri, Aquila operates electricity and natural gas distribution networks serving more than six million customers in seven states and in Canada, the United Kingdom, New Zealand and Australia. The company also owns and operates power generation and mid-stream natural gas assets. More information is available at www.aquila.com.

Source: Aquila, Inc.

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