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Bates White economist, Jonathan Lesser, speaks on AF&PA FPO
proposal at FERC conference
WASHINGTON DC, May 8, 2008—On May 7, 2008, Jonathan A. Lesser, Ph.D., presented a paper,
“An Assessment of the Financial
Performance Obligation Proposal by the American Forest & Paper Association” at a Federal
Energy Regulatory Commission (FERC) technical conference on the operation of forward capacity markets in
New England and the PJM region.
The conference included discussions of proposals by American Forest & Paper Association (AF&PA),
Portland Cement Association, and others for modifying the design of those markets.
The AF&PA proposal discussed in the Bates White paper advocates a market design alternative called
“Financial Performance Obligations” or “FPO.” The FPO proposal would apply to
regional transmission organizations (RTOs) and independent system operators (ISOs) that either have
implemented markets for installed capacity or are in the process of implementing them, such as the PJM,
NYISO and ISO-NE markets.
According to Dr. Lesser and Guillermo Israilevich, Ph.D., coauthor, the FPO proposal is problematic
with respect to both its implementation and its potential to deter new generation and demand response
investments. Lesser and Israilevich question whether there is a need for yet another new market design
given that current power markets are working well.
The Bates White economists say that the FPO proposal likely will be perceived by investors as a midcourse
change in capacity market rules and that it will discourage new generation investment and raise
prices—precisely the opposite of what the AF&PA says are its goals.
“An Assessment of the Financial Performance Obligation
Proposal by the American Forest & Paper Association” discusses the development of capacity markets
in regions with organized wholesale markets, the economic rationale for market-based capacity payments, and the
components of the proposed FPO. It also compares the FPO proposal with others in the current RTO market construct.
Dr. Jonathan Lesser is a Partner with Bates White, LLC,
with 25 years of experience working for regulated utilities, government, and as an economic consultant. He
has addressed critical economic and regulatory issues affecting the energy industry, including gas and electric
utility structure and operations, mergers and acquisitions, cost allocation and rate design, resource investment
decision strategies, cost of capital, depreciation, risk management, incentive regulation, economic impact
studies, and general regulatory policy.
Dr. Lesser has testified before utility commissions in numerous states, before the Federal Energy Regulatory
Commission (FERC), before regulators in Mexico and Puerto Rico, in commercial litigation cases, and before
numerous state legislative committees. He is the coauthor (with Dr. Leonardo Giacchino) of
Fundamentals of Energy Regulation,
published in 2007 by Public Utilities Reports, Inc. Dr Lesser has written numerous academic and trade press articles,
and he is a contributing columnist and Editorial Board member for Natural Gas & Electricity.
Dr. Guillermo Israilevich specializes in analyzing market power
and antitrust matters in regulated industry disputes. Dr. Israilevich has provided economic analyses related to
competitive market behavior in restructured electric power markets and regulated utilities’ ability to
exercise horizontal and vertical market power. He also has expertise in the economic analyses of market design and
investment costs for merchant generation plants. Dr. Israilevich has an extensive background in industrial
organization, regulation, finance, and strategy matters.
About Bates White
Bates White, LLC is a consulting firm offering services in economics, finance,
and business strategy to leading law firms, Fortune 500 companies, and government agencies.
We provide our clients with a unique combination of quantitative and analytical expertise
and an understanding of business issues across a range of industries.
Bates White has offices in Washington, DC and San Diego, CA.
For more information, visit: www.bateswhite.com
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