bilateral contract, and in particular, may try to recover “prof-its” from incumbent utilities holding a PPA for a successful contract but provide no compensation for “losses.” To the extent that this perception is correct, the possible asymmetry in the treatment of profits and losses increases the regulatory risk faced by investors.

In summary, getting sufficient financing for the capital-intensive investments in a new generation or transmission facilities needed to maintain the reliability of supply in the NYCA requires state regulators to address the following issues:

  • Long-term PPAs and other contracts need a projected revenue-stream that will cover the production costs and support the recovery of the initial capital cost with a reasonable rate of return.

  • A regulatory commitment is needed to establish and abide by explicit rules governing long-term PPAs and other contracts.

  • Credit-worthy counterparties are needed for investors initiating long-term PPAs and other contracts to build new facilities, or as an alternative, some regulatory backup to deal with defaults on contracts.

  • Increased regulatory consistency is needed for expediting the siting and licensing of new facilities at the state and local level. (Note that the Article X law, which facilitated this process, expired in 2002. A variation of the Article X law was introduced in the New York State Legislature in 2005 but was never enacted.)

  • More emphasis is needed on the importance of upgrading transmission facilities (current regulatory practices and the models used for analysis treat generation adequacy as the main issue for maintaining reliability and do not address transmission adequacy effectively).

  • Appropriate roles should be established for the New York Power Authority and the Long Island Power Authority to determine the best way for these authorities to help maintain reliability standards. (These two public authorities control substantial amounts of generation and transmission capacity in New York City and Long Island. In the past, these authorities have been used to intervene in the market by, for example, installing 500 MW of peaking capacity in New York City. These types of decisions are not part of the standard planning process in the NYCA, and as a result, they create an additional source of regulatory risk for investors.)

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