Electricity Market Investment Group

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Electricity Market Investment Group

• Presentation to the Ontario Energy Board

February 17, 2004
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Who are we?

• A coalition of companies that represent a
  significant portion of the potential
  private-sector investment in Ontarios
  electricity marketplace
• Constellation NewEnergy Canada Inc.
• Constellation Power Source, Inc.
• Coral Energy Canada Inc.
• EPCOR Utilities Inc.
• Sempra Energy Trading (Canada) Limited
• Sithe Energies, Inc.

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EMIGs Objective

• Develop solutions to ensure electricity
  marketplace sustainable and effective (assumes
  private-sector investment is a component)
• Seek consensus and support from other
  stakeholders in Ontarios energy industry for
  these common positions
• Support government to introduce these and other
  positive changes to restore consumer and private
  sector confidence in the market

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Competition is Good Public Policy

• Competition in wholesale electricity markets is
  the best way to protect the public interest and
  ensure that electricity consumers pay the lowest
  price possible for reliable service.
• US Federal Energy Regulatory Commission, Rule on
  Regional Transmission Organizations, Order No.2000

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EMIGs Proposals

• Provide a workable, incremental approach to
  implementing key recommendations of the Task
  Force
• Preserves benefits of competition through a
  viable, liquid wholesale market
• Promotes private sector investment with
  appropriate risk allocation
• Protects small consumers while maintaining retail
  customer choice

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Standard Supply Service Objectives

• Acknowledge current need for supplier of last
  resort
• Reasonable price stability for low-volume
  customers
• Puts needed demand in the wholesale forward
  markets
• Avoids undue burden on LDCs
• Must dovetail with supply ownership diversity
  targets

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Role of Load Serving Entities

• LDCs are effectively Load Serving Entities
  legislated obligation to serve consumers
• Existing obligations can be enhanced to recognize
  the needs of a developing market
• Loads represented by SSS consumers currently
  served by LDCs need to be available to the
  wholesale market to facilitate the development of
  a robust forward market
• The aggregation of SSS procurement would have
  many benefits, including limiting the
  administrative costs and regulatory burden
  associated with many small entities procuring SSS

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Spot vs. Forward Market

• Spot Market
• Essential to balance need and supply of energy

• Forward Market
• Provides for stable and predictable pricing
  options
• Promotes investor confidence and gives Province
  greater access to private capital

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Standard Supply Service

• Eliminate full spot-price pass-through to
  low-volume consumers
• LDCs can choose one of two approaches
• LDC supply portfolio (gas model)
• Full requirement outsourcing
• LDCs free to act jointly in managing common
  portfolio or outsourcing solicitation
• Periodic review to assess effectiveness

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Standard Supply Portfolio Approach

• LDCs manage portfolio directly to supply SSS
• OEB process to establish guidelines for standard
  portfolio
• Varying contract terms
• Appropriate spot component
• No need to limit consumer mobility spot
  component allows for management of customer
  attrition weather risk
• Quarterly price review and true-up
• SSS rates should reflect full cost of supply
  service

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Standard Supply Service Outsourced

• LDCs to solicit bids for full requirement service
• Third party suppliers provide full requirements
  at fixed price
• No need to limit consumer mobility third party
  assumes attrition risk as part of portfolio
  arrangement
• OEB to establish oversight of competitive
  solicitation process
• Provide for broadest possible participation in
  bidding process by competitive entities

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Heritage Power in the SSS Portfolio

• Recommend an Auction approach for Heritage
  power
• SSS providers and other market participants
  purchase power strips (contracts for fixed price
  term) through auction process
• Creates secure revenue stream that can be
  allocated to consumer or elsewhere
• Realizes assets value for consumer, but does not
  distort Wholesale or Retail Market
• Addresses market control issue
• Enhances liquidity in Wholesale Market

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Summary

• Establishment of a functioning forward market is
  the key to protecting consumers and encouraging
  private investment
• An incremental and transitional approach is the
  soundest way to achieve this market reform
• Some additional near-term measures may be
  necessary
• EMIG would be pleased to participate in dialogue
  to refine details

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THANK YOU
Questions?