Electric utilities have an obligation to provide reliable service at reasonable rates. In jurisdictions where utilities continue to have the exclusive right to provide generation, transmission, and distribution services to customers in their service territory, this obligation applies to all of these services. In jurisdictions that have restructured their electric industry to allow retail competition, i.e. to allow customers to choose their generation service provider, this obligation continues to apply to the entity providing “Standard Offer” or “Default” generation service as well as to the the electric utility providing distribution service.

Thus, regardless of the structure of the electric industry, providers of generation service continue to have an obligation to provide reliable service at reasonable rates. One way to achieve this result is to use portfolio management techniques in the design of the generation mix. This means choosing a diversity of generation technologies, a diversity of generation fuels, a diversity of suppliers and a diversity of contracts. In the gas industry, local distribution companies (LDCs) have been using a portfolio management approach for their gas supply planning, contracting, and procurement for many years.

To achieve this mix, various generation procurement processes can be implemented, including auctions and requests for proposals, each of which has its benefits and disadvantages. Issues that arise in procurement practices include timing and duration of contracts, process evaluation parameters (process transparency, affiliate transactions, and market power), the role of renewables, energy efficiency, and the use of financial hedging instruments.

Synapse’s work on portfolio management with respect to power procurement includes:

	Exploring strategies and evaluating residential and small commercial basic service procurement processes in Maine, Delaware, Connecticut, and Ohio
	Testifying on procurement methodologies in Illinois, including role of renewables and energy efficiency
	Determining the reasonableness of the results of New Jersey’s auction for basic generation service
	Quantifying the difference and significance in price of short versus longer-term contracts and their respective impacts on customers’ bills
	Exploring the relationship between gas prices and electricity prices and offering strategies on reducing rate price risks