6.6. ERMUSR 01-11-2005 - Laserfiche WebLink

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ability to obtain transmission service at a known and reasonable rate over a long time horizon (often measured in decades, not. years). The LIVID/FTR s}'stem has deprived thorn of their ability to plan with any certainty for new long-term generation resources that APPA members are deeply would require transmission service, e.g., development, of Concerned abOUt their` or participation in a new generation resource (including Inability t0 hedge fully their erl~ironmentally desirable resources such as wind generation), transmission congestion or execution of long-term power supply contracts with COStS, and thUS. t0 aSSUre suppliers that require the buyer to assume the risk of their ability t0 Obtain transmission service. transmission S@rViceat a ~ Under an L~9P congestion pricing regime, the "all-in" price of known and reasonable rate any new resource is subject to price fluctuations, not only due Over a IOng tlmehOriZOn to increases in Fuel prices, {fixed transmission costs, and other (Often meaSUred In decades, such "traditional" factors, but. due to congestion caused by ItOt years). shifts in transmission system usage and prices in the RTO's spot power markets (which can be extremely volatile). This is true even whew the tetility is not purchasing power in that market. If suppliers agree to assume this additional price risk at all, they do so only in return for hefty premiums that come out of electric consumers' pockets. 'T'his increased uncertainty and risk could lead to lower credit ratings and increased capital costs when public power systems commit to nee-v long- term arrangements and the accompanying financing.' Since many public po~ti•er systems are physically or ~~irtuall}' ~'erticall~° integrated acrd all retain the obligation to serve their loads, they see this as an extremely serious shortcoming in FERC's preferred RTO model. Such ashort-term focused regime is not good for the industr~~ in the long run: not good for utilities that need long-term po~ti~er supplies; not good for generation project. developers that need long-term commitments to support their projects; not good for financial institutions lending the 5 A Special Comment by Moody's Investors Service issued in September 2004, en[itled "Credit Issues Kesurface as New Electric Generation Projects by Public Poceer Utilities Take Center Stage," cites several Cactors that could contribute ro increased credit risk for public power utilities building new generation facilities. Prominent among thorn are transmission and pricing practices: "Aloody's believes there is potential risk in the short-term marginal pricing model being used in various regional energti~ markets in the U.S. VVithuut long-term contracts for transmission rights and pricE: certainty for the transmission of energy from new generation facilities, cost recovery in the long term may not be assured." Id. at 4. Restructuring at the Crossroads: FERC Electric Policy Reconsidered 9