Synapse Energy Economics, Inc.

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Synapse recently issued a report on electricity portfolio management for the National Association of Regulatory Utility Commissioners (NARUC). The report critiques available models used for portfolio management and resource acquisition and provides advice for regulators on how to choose and utilize such models in making regulatory decisions. The report discusses issues related to load and price forecasting in wholesale markets, optimal design of default service and traditional utility resource procurement and portfolios, risk analysis and risk management, and related practices in a range of both restructured and traditionally regulated states.
[ Download Report ]

Competitive Electricity Procurement Policies in Ohio
Ohio faces a significant challenge when the current power supply provision expires at the end of 2008. Many states have already experienced skyrocketing price increases when Ohio's under "rate stabilization plans" expire. In response to this challenge in Ohio, Synapse and Resource Insight prepared a report on electricity supply procurement policies for the Office of the Ohio Consumers Counsel.

The report proposed a diversified portfolio strategy for procuring Standard Service resources that will protect customers from excessive swings in market prices, as well as provide opportunities for the development of clean and efficient resources needed for reliability, price stability and/or bill reduction. Synapse also investigated the integration of the renewable energy portfolio standards and energy efficiency portfolio standards into the POLR.
[ Download Report ]

Evaluating the Economics of Coal in North Carolina
In early September, Synapse reviewed the application of Duke Energy for two 800 MW coal-fired units to be built in North Carolina. In testimony before the North Carolina Utilities Commission, Synapse consultants David Schlissel and Anna Sommer presented their evaluation of the Company's energy efficiency and renewables alternatives and warned the Commission that Duke was underestimating the cost of the coal units. In late October, Duke notified NCUC that the cost of its units had gone up by 50% to $3 billion. The NCUC has now reopened the record and additional hearings will be held in January.
[ Download Testimony ]

Integrating Wind Power into the British Columbia Hydro Electric System

Synapse examined three interrelated issues in British Columbia regarding the appropriate treatment of variable output resources. These included BC Hydro's $3/MWh "firming" premium used at the evaluation stage of their 2006 RFP for energy resources, the liquidated damages (LD) provisions of BC Hydro's standard contract for large wind energy providers, and existing wind integration operational cost studies.

Synapse concluded that the firming premium is not supported as the storage and ramping capability of BC Hydro's hydroelectric resource base is more than sufficient to allow for monthly rather than hourly scheduling. Synapse also concluded that the LD provisions could cause wind projects to appear more expensive than they actually are. Lastly, Synapse recommends detailed technical analyses be conducted to analyze the impact of varying levels of wind penetration on BC Hydro's operational costs.
[ Download Testimony ]

Synapse Investigates Market Power in Exelon-PSEG Mega Merger
On behalf of the New Jersey Division of the Ratepayer Advocate, Synapse investigated the market power effects of the proposed merger between Exelon Corporation and Public Service Enterprise Group (PSEG). The merger would have created the nation's largest power generation company with 52,000 megawatts and $79 billion in assets serving 9 million customers in Illinois, Pennsylvania and New Jersey. Synapse concluded that the benefits claimed for the merger were outweighed by the increased ability of the merged company to exercise market power. The resulting increase in market concentration would harm competition and potentially lead to higher consumer costs. The merger was called off on September 14th.

Synapse's analysis included running CRAI's CASM model, re-running delivered price test analysis by petitioners' witness Frame, and modeling of market power impacts using ELMO. The results of Synapse's analyses were presented in affidavits to FERC and testimony before the New Jersey Board of Public Utilities.
[ Download Testimony ]

Illinois finds Mercury Standards “Technically Feasible and Economically Reasonable”

Synapse provided testimony to the Illinois Pollution Control Board that a strongest-in-the-nation mercury emissions rule, requiring coal-fired energy plants to reduce mercury emissions by 90 percent, would have benefits that far outweighed any economic costs of implementation. Synapse examined the proposed rule’s likely impact on wholesale electricity market prices, competition, retail electricity prices, jobs and the environment in Illinois. Our tasks included a critical review of IPM model runs performed by ICF, in addition to developing our own estimates of likely impacts, and a comparison of projected costs to the benefits of cleaner water, healthier fisheries, and decreased human health and mortality.

After the hearings and our testimony, the Illinois generators entered negotiations resulting in a much broader multi-pollutant standard which retains the strict mercury reductions but allows for increased flexibility in meeting the standard. On November 2, 2006, after holding hearings in Springfield and Chicago and reviewing more than 7,000 public comments, the Illinois Pollution Control Board unanimously approved the negotiated standard. The standards will now go to the Illinois General Assembly for review.
[ Download Testimony ]

Synapse Protects Consumers in Redesign of PJM Capacity Market
Representing state utility consumer advocates from Pennsylvania, Ohio, and the District of Columbia, Synapse played a crucial role in the settlement talks regarding the redesign of the capacity market for the nation's largest RTO, the PJM Interconnection. With Synapse's help, the design submitted to FERC for approval on September 26th will impose lower capacity costs on consumers than the original proposal, without compromising reliability.

"The new design is still problematic, because most of the money will be paid to existing generators who don't need the subsidy," says Synapse expert Ezra Hausman, who spent several weeks of the summer engaged in intensive settlement talks at the FERC. "However, it is the product of a long and difficult consensus-building process with compromises on all sides, and it is a lot better than the original proposal from consumers' perspective."

Prior to the settlement talks, Synapse staff authored three reports on the implications of the RPM proposal for consumers and participated in a FERC technical conference on this topic.
[ Download Hausman Pre-Conference Comments ]
[ Download Conference Handout ]
[ Download CCR Post-Technical Conference Comments ]

Transparency and Efficiency in Default Service Procurement
Synapse recently assisted the Staff of the Delaware Public Service Commission in conducting a multi-party exploration of potential updates to Delaware's procedures for competitive procurement of power to serve default service customers. In the wake of major retail rate increases from the State's first procurement, the Delaware Legislature enacted major changes to the State's electric restructuring statute.

Synapse helped the Staff plan and run workshops to gather the views of retail marketers, wholesale generators and marketers, consumers, and the serving utility. We then fashioned written proposals for process changes, moderated discussions among the parties, and helped negotiate consensus on most of the issues. Synapse also helped the Staff draft and present its report to the Commission. Among the changes adopted by the Commission were provisions to increase and speed up public disclosure of information about bids, to coordinate procurement timing with surrounding jurisdictions, and provide the Commission with better market information and added flexibility to manage the RFP.

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Synapse Energy Economics is a research and consulting firm specializing in energy, economic, and environmental topics. Our work is typically presented in testimony or reports which are intended to inform sound decisions with regard to ratemaking, regulation, planning, operations, and policy.

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