Independent power producers (IPP) currently provide nearly 40% of the power generated in the United States, and they continue to nip at the heels of utilities, which provide the 60% of generation, despite facing challenges in many areas of the country.
That message framed the discussion at the FERC/NARUC Sunday Morning Collaborative, which opened the NARUC 2013 Summer Committee Meetings in Denver, Colo., July 21.
The growth of IPPs’ market share, however, has not been without obstacles, including the competitive solicitation process for power procurement. IPPs’ success in competing for power contracts is an area that some panelists suggested bears closer scrutiny.
Officials from Colorado said they see a lot of interest in competitive solicitations, but few IPPs actually submitting bids.
“In one case, we only got two bids and they were by the same company, and we felt they were more expensive than the utility-owned bid,” William Levis, consumer advocate, Colorado Office of Consumer Counsel, said. “From a consumer standpoint, we look at [the] short term and long term, and we want the lowest cost for our constituents, but when you don’t get a lot of bids, then the question is, ‘Are you getting anything that’s really competitive?’”
Circumstances are different in the Pacific Northwest and intermountain regions, where officials report “very robust bidding in competitive solicitations,” but outcomes that are more like those in Colorado than the process would suggest.
“It’s a rare day when an IPP wins a competitive bid when the IOU is a participant in it,” Robert Kahn, executive director, Northwest and Intermountain Power Producers Coalition, said. “Over the last five to eight years, thousands of megawatts have been put out to bid, and perhaps 6% of that total has been met by IPPs.”
Not all power providers have experienced the same lack of success. NRG Energy’s (NYSE:NRG) representative said his company has been very successful responding to RFPs, but it has done so almost entirely in states with organized markets and state programs that are explicitly designed to elicit bids.
“The first thing we need to see is a process where we know that, if we put in a competitive bid, we’ll get the project,” Steven Corneli, vice president of NRG Energy, said. “We haven’t done anything in states without that kind of process.”
Corneli, a former consumer advocate for the state of Minnesota, said the rules must be clear and applied uniformly to get robust participation.
“We’ve had a lot of engagement with our state regulators to ensure that the market knows what the rules are before you put your bid in so that you do know you stand a fair chance of winning if you comply with those rules and deliver the least-cost [solution for the] project,” he said.
He also listed several checks and balances that can help ensure fair selection among competing bids. Among those is an independent evaluator to evaluate competing bids and issue a recommendation, a mandatory requirement that state regulators make their decision on the basis of the independent recommendation, a standard form contract, and transparent criteria for selecting the winning bids, Corneli said.
Unlike other situations cited, Northwest utility PacifiCorp said it has entered into a large number of IPP contracts rather than self-supply.
“We’re the second-largest utility owner of wind in the United States,” Stefan Bird, PacifiCorp SVP said. “What’s often missed in that is that about half of our [wind] portfolio is third-party IPP contracts that have come from a number of RFPs that we’ve issued over the last several years.”
Bird said his company is quite specific in its RFPs, and considers location and system capacity when designing requests for power.
“Depending on transmission constraints and reliable capacity, we may only look for resources on one side of our system until more transmission is constructed and allows us to look for resources elsewhere, but we always specify the points of receipt,” he said.
Panelists concurred that regulators need to look more closely at the RFP process itself.
“Where the utility is a participant in the bid, it isn’t working. It could work, but it isn’t working now,” Kahn said. “There is no incentive for an investor-owned utility to sign a PPA. On the contrary, there are incentives to self-build.”
Finally, Kahn said, the integrated resource planning process, which has made a strong comeback, needs to closely examine whether it is prudent for utilities to own certain assets rather than contracting with independent providers.
“[Utility commissions] need to include a very explicit conversation with IOUs about what they feel they need to own and why, and what they feel they could live with renting,” Kahn said. “Let’s have the utility endeavor to convince the regulator why they must own, why they must build. And if that’s convincing, OK.”
Kahn paraphrased a quote from 18th century orator John Philpot Curran, but often misattributed to Thomas Jefferson, when he told the regulators that competitive solicitation will not work effectively without their active support and oversight. He said, “The price of a successful RFP for least-cost power is in your hands as regulators: eternal vigilance.”