negotiated contracts concluded that there were "no significant differences between prices signed under negotiation and those winning RFPs."/

Competition does more than just reduce cost. Wholesale generators in competitive markets are emerging as vital supply options to meet the need for new electric generating capacity in the 90's. Among the major benefits to electricity consumers and our national economy from competition are:

Removing barriers to competition by allowing new products and producers into markets;

Encouraging least-cost pricing through increased supply options for consumers
which will reduce cost and increase our national competitiveness. Reliance on
market forces, not regulation, to determine prices will optimize the efficiency of
the system;

Continued shifting of construction and operating risks from ratepayers to
wholesale generators in a manner that promotes efficiency and penalizes
incompetence; and,

Increasing the incentives for technological innovation and market responsiveness.

Since PURPA, independents have demonstrated numerous benefits from competition. As the number of independents in the wholesale generation market has grown, competition among them has also increased, forcing them to develop better technology and use creative contractual and financing arrangements in an effort to provide a stronger, more efficient and less costly facility.

Competition Promotes Technological Innovation

Competition has stimulated technological development and innovation. There have been several energy generation and environmental control advances produced by independents since the passage of PURPA, and, as research continues in this area, there is little doubt that new technology will develop in the future.

Technological advances by independents include:

Clean coal technologies such as circulating fluidized bed combustion to burn coal cleanly and burn low grade waste fuels, award winning coal gasification designs,

Massachusetts Electric Company, Alternative Energy Negotiation-Bidding Experience, 1990 Report,
Pg.3.

and the dry limestone injection process for reducing the SO2 emissions from
burning high-sulfur coal.

Dramatically more efficient combined cycle systems and gas peaking units which add a heat recovery system and a steam turbine for generating additional electricity.

Advances in waste-to-energy technologies to burn wastes, such as municipal solid waste, tires, rice-hulls, and wood wastes.

Cost savings through innovative approaches to expediting and streamlining
development of hydro pumped storage and conventional hydro. Also,
independents have demonstrated success in restoring and creating small
hydroelectric projects.

Leadership in developing commercial applications of geothermal, solar and wind power technology.

Developers have found ways to reduce their fuel risks through innovative procurement practices. Finally, independent facilities have achieved cost reductions relative to utility standards through lower construction costs and innovative construction contracting and performance guarantees.

Reliability of Independent Generators

Some utilities have disputed the gains from competition in power markets. They claim that without the utility obligation to serve, the proliferation of independent generation threatens the reliability of the nation's electric system. In the last decade, independents have proven their ability to both construct and operate power plants reliably. By all accounts, the operational record of non-utility generators is excellent, both under normal conditions and in emergency situations.

Selling power under a contract price to utilities creates strong incentives for reliable operation. Wholesale generators who are paid only for power actually delivered have a strong financial interest in the reliability of their facilities, stronger in many cases than utilities who can pass the costs of their mistakes onto ratepayers if their facilities do not operate properly.

A recent survey of 172 projects selected through competitive bidding since 1984 shows that the vast majority of projects (85 percent) are in development, under construction or on-line. (See Attachment Chart 3). Less than 15 percent of those projects have been canceled, most of them very early in the process, and with little or no impact on utilities' supply plans. In addition, utilities can and do factor failure rates for projects selected through competitive bidding into their resource plans.

ย Robertson's Current Competition, Vol. 2, No.4, February 1991, pages 2, 13.