National Perspectives on Retail Energy Market Development

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National Perspectives on Retail Energy Market
Development
Craig G. Goodman President National Energy
Marketers Association 202-333-3288 cgoodman_at_energy
marketers.com www.energymarketers.com
State of Connecticut Senate Energy Technology
Committee Informational Hearing February 21,
2007
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(No Transcript)
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National Energy Marketers AssociationOverview
Who Is NEM?

• Non-profit trade association representing
  wholesale and retail marketers of natural gas,
  electricity, as well as energy and financial
  related products, services, information and
  advanced technologies throughout the United
  States, Canada and the European Union.
• Independent power producers, suppliers of
  distributed generation ABCs-Aggregators, Energy
  brokers, Consultants--power traders, electronic
  trading exchanges and price reporting services
• Advanced metering, demand side management and
  load management firms Billing, back office,
  customer service and related information
  technology providers

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National Energy Marketers AssociationOverview
Who Is NEM?

• Energy consumers
• Inventors, patent holders, systems integrators,
  and developers of solar thin film building
  integrated photovoltaic, fuel cells, and advanced
  BPL, PLC technologies as well as Smart
  Electricity.TM
• Committed to helping implement a
  consumer-focused, value-driven transition to a
  reliable, price and technology competitive market
  for energy and telecom related products,
  services, information and technologies.

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Potential Benefits of Competition

• Energy choice programs provide consumers with a
  myriad of benefits
• Better price and service options
• Access to innovative new offerings of products,
  services, information and technology
• Lower energy prices lower the cost of doing
  business permitting companies to better compete
• Lower energy prices help states to attract new
  businesses, increase job opportunities and
  increase state tax revenues
• Consumers do not bear the risk of generation
  investments as captive utility customers
• Consumer Protection-The ability to do business
  when you want, with whom you want, and then to
  buy what you want is one of the greatest consumer
  protections that government can offer.
• Savings from competition in the marketplace are
  cumulative like compound interest (even if prices
  are otherwise rising)

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Documented Benefits of Competition

• Texas ----the competitive market has provided
  customers with prices that were significantly
  below the estimated rates that would have been in
  effect in a regulated environment. Even
  customers who did not switch to a competitive
  rate have benefited from the introduction of
  retail competition. During each of the years
  2002 through 2005, the PTB Price to Beat was
  lower than the estimated regulated rates in both
  service areas.
• New York---The total real (i.e.,
  inflation-adjusted) electric price for a typical
  residential retail customer in New York,
  including supply and delivery charges, has
  dropped by an average of approximately 16
  between 1996 and 2004.
• Commissions Legislative Report on Electricity
  Pricing in Competitive Retail Markets in Texas,
  Project 32198
• Staff Report on the State of Competitive Energy
  Markets Progress To Date and Future
  Opportunities, March 2, 2006.

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Documented Benefits of Competition

• CERA Study---the majority of U.S. consumers
  have paid less for electricity since the onset of
  power system deregulation in 1997, achieving
  total savings of about 34 billion compared with
  the costs if traditional regulation had
  continued.
• Joskow Study------for the period of 1996 to 2004,
  "real residential prices fell more in states that
  implemented retail competition programs than in
  those that did not.
• CERA, Press Release, Power Deregulation Saved
  34 Billion, Benefited Majority U.S. Consumers
  Over Past 7 Years CERA Study, October 19, 2005
  
• Markets for Power in the United States An
  Interim Assessment, The Energy Journal, 2006.

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Problems to Solve

• Depression Era Utility Regulations- the current
  utility regulatory model was designed during the
  great depression. Is One Choice all We Need? (Are
  two choices bad and ten choices terrible?)
• The Utilitys Obligation to Serve the Public
  Interest changed between early 20th century and
  early 21st century- (new competitive services,
  information and technology markets, global
  competition for jobs and economic growth and
  better standards of living)
• How can we best serve the Public Interest in a
  Digital Global Economy

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Energy and Technology Competition

• Since the end of the Cold War, countries around
  the globe have increasingly followed the lead of
  the United States in adopting market-based
  solutions to laws, regulations and public
  policies.
• Western-style economies in the EU, Scandinavia,
  and Australia, have restructured their energy
  sectors to better allocate resources and
  encourage economic growth.
• Even historical command and control economies of
  the former Soviet Union and the Asia Pacific are
  also relying more heavily on market-based
  solutions.

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Energy and Technology Competition

• Historically, the United States has relied on its
  abundant resource base, technology leadership and
  market-based policies to drive economic growth.
• However, global competitors are upgrading energy
  and telecom infrastructures to better compete in
  the digital economy of the 21st Century.
• Deregulation of the U.S. telecom and airline
  industries have yielded significant price and
  technology dividends to the consumer and the
  economy.
• Long distance telephone rates were 4.50/minute
  at the dawn of telecom deregulation. Discount
  airlines such as Southwest and Jet blue had not
  yet evolved

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Technology is the Enabler

• Increased Supplies Cleaner Fuels-(clean coal,
  smaller safer nuclear, landfill methane,
  bio-fuels, solar, fuel cells, ocean thermal, DG,
  efficiency technologies)
• Reduced Demand (time of day rates, smart meters,
  net metering, DG units reduce utility demand)
• Greater Reliability (digital power quality)
  Homeland Security (critical infrastructure
  protection)
• Economic Growth Job Creation

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Technology is the Enabler

• Enhanced Advanced Metering consumer
  monitoring and control of energy usage-remotely
  aggregated and dispatchable
• Solar Energy - innovative power generation
  technology, enables the external surfaces of a
  building, such as windows and other building
  materials, to function as solar energy systems.
• Hydrogen Fuel Cells clean, no emissions power

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Technology is Converging

• Broadband over Power Lines (BPL)- generation and
  transmission of electricity commingled with
  information/content (inductively coupled) over
  electrical power South Africa Portugal
  Australia, Tasmania Canada, Quebec Asia Pacific
  and Oceania regions with many successful trials
  in Australia, China, Indonesia, Hong Kong,
  Malaysia, Philippines and Taiwan. .Middle East
  and Africa. a long term trial running in Russia.
  Sources indicate 300,000 Chinese have access BPL
  at speeds of 200 megabytes/second

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Technology is Converging

• Broadband over Power Lines (BPL) One kilowatt
  can transmit the entire film library of Hollywood
  California around the U.S., 60 times every second
  without any reduction in reliability
• United States Virginia In October 2005 the city
  of Manassas began the first wide-scale deployment
  of BPL service in the nation, offering 10
  Megabits service for under 30 USD per month to
  its 35,000 city residents, using MainNet BPL
  technology. California approved a plan on April
  27, 2006 allowing high-speed internet providers
  to begin testing delivery of online access using
  power lines.

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NYPSC Statement of Policy on BPL principles

• The deployment of economically viable BPL
  technology by electric companies
• The deployment of BPL technology to provide
  communication services to the
• public.
• The deployment of BPL technology to provide
  communications services to the
• public may not be implemented by regulated
  electric utilities.
• Circumstances may arise when work related to the
  BPL system must be performed by utility employees
  or utility approved contractors.
• Utilities remain responsible for ensuring safe
  and adequate electric service.
• The BPL provider and the utility should develop
  procedures for sharing and protecting customer
  and system information.
• Pole attachment tariffs will continue to apply to
  attachments to utility poles by BPL providers.
• BPL providers should pay a fee for the ability to
  access the electric utility system.

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Low Cost/High Yield Options

• Avoid Duplication of Utility Charges
• Transparent Utility Bills (unbundled rates
  allows competition)
• Full and Fair Disclosure of Costs and Risks
• Proper Consumer Shopping Credits (full costs not
  marginal costs)
• Purchase of receivables, esp. in conjunction
  with Marketer Referral Programs (NY all except
  Keyspan NJ PSEG, South Jersey Gas, New Jersey
  Natural Gas Ohio DEO, Columbia PA PECO,
  Columbia MI MichCon and Consumers IN
  NIPSCO)
• Customer lists and usage data

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Low Cost/High Yield Options

• Subsidies should not distort commodity prices--
  Compare FirstEnergy (OH) (25 year deferral) with
  BGE (MD) competitively neutral non-bypassable
  charge
• Migration Incentives Higher returns tied to
  migrationNY-ConEd, OR, Central Hudson
• Public Education- Compare Delaware to Maryland to
  New York (optional repayment with interest-
  Consumers are smart enough to shop New York1.3
  million have shopped)

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Low Cost/High Yield Options

• Data exchange standardization
• Fair allocation of utility resources (Assets
  follow the customer)
• Customer choice of bill provider

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Restructuring Dividends

• Restructuring Dividend Reinvestment Incentives-
  (Resources reallocated from competitive markets
  to reliability investments rewarded with higher
  rates of return )
• Reliability is increased- utility retains core
  competency (more reliable delivery) More
  Reliable Supplies market supplies competitive
  services (Contracts stronger than Compacts Legal
  and regulatory risks reduced)

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Market-Based Pricing

• Electric
• Residential and small commercial
  monthly-adjusted, market-based pricing
• Large commercial and industrial hourly pricing
• Gas monthly adjusted, market-based pricing

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Market-Based Pricing

• NJBPU expanded class of customers on hourly PJM
  real time pricing to all customers above 1,000 kw
  effective June 1, 2007
• NYPSC required utilities to implement hourly,
  real-time pricing for their large customers
• ConEd/OR (5/1/06) mandatory time of use
  customers w/peak demands greater than 1.5 and 1
  MW, respectively
• National Grid (9/1/06) SC3 customers at 500kw and
  above
• NYSEG/RGE (1/1/07) time of use customers at 1000
  kw or above, later filing to convert remainder of
  mandatory time of use customers
• Central Hudson (2005) customers w/peak demands
  greater than 1 MW
• NJBPU Docket EO05040317, Order, December 8,
  2005, pages 15-16.
• NYPSC Case 03-E-0641, Order, April 24, 2006.

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Market-Based Pricing

• U.S. DOE recommended that state Commissions
  consider adopting real time pricing as the
  default service for large customers
• Default service RTP tariffs that index hourly
  prices to day-ahead markets support demand
  response and retail market development by giving
  customers more notice and certainty of the
  financial consequences of their response.
• U.S. Department of Energy, Benefits of Demand
  Response and Recommendations, February 2006, at
  52.

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Market-Based Pricing
NYPSC reasoned, As price signals for highest
peak hours are transmitted to customers, those
large customers can be expected to respond . . .
. Since large customers use amounts of
electricity disproportionate to their number,
that response could have a significant impact on
peak period prices. More accurate price signals
are also known to promote economic efficiency in
general. Moreover, as demand-side load reduction
and load control measures are implemented in
response to these price signals, the potential
for the exercise of wholesale market power is
mitigated. Gaining and taking advantage of
market power is more difficult, particularly
during peak periods, when efforts to increase the
price of supply meet resistance in the form of
reductions to demand. NYPSC Case 03-E-0641,
Order, April 24, 2006, pages 14-15.