Coordination of Wholesale and Retail Markets

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Coordination of Wholesale and Retail Markets

• Enabling Demand Response and Distributed
  Generation in the Mid-Atlantic
• Michael Swider
• June 14, 2004
• Baltimore, MD

www.Allianceforretailchoice.com
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Alliance for Retail Choice

• The Alliance for Retail Choice represents the
  leading, national retail energy suppliers who
  collectively serve over 16,000 MW of customer
  load with competitive energy supply, green power,
  demand response products and energy management
  technologies.
• Constellation NewEnergy
• Green Mountain Energy
• Strategic Energy
• Reliant Resources
• Centrica North America/Direct Energy

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Over 52,000MW Retail Choice
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Provider of Last Resort

• Provider of Last Resort (POLR) is retail
  generation service provided to customers that do
  not affirmatively choose an energy supplier or
  otherwise are left without a supplier-of-choice.

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POLR Critical to Competition

• Many states exiting transitional period with
  opportunity to move more customers off regulated
  POLR service
• Shift risks to market participants
• Promote innovation and efficiency
• Demand Response
• Distributed Generation
• Energy Efficiency
• Renewable Resources

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Transitions Ending within 4 years
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Some Transitional Models

• Captive Revenue Model VA
• Shopping Credit Model PA
• Discount and Defer Model MA (Standard Offer
  Service)
• Price cap CA and Ontario
• All separate retail prices from wholesale prices

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Key POLR Pricing Principles

• Integrated with Wholesale Market all retail
  suppliers exposed to market risk.
• No market risk (or reward) to the regulated Wires
  Company
• Separate from Distribution revenues
• All retail electric suppliers will have an
  incentive to reduce customer demand during peak
  if the wholesale market functions properly.

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Texas Large Customer Model

• Unregulated POLR and Default
• Full Functional Separation
• Near 100 switching for large customers
• Highly competitive

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of Primary and Transmission Level Customers and
MWhs Served by Non-Affiliated REPs in Texas
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LaaRs and the BULs

• Load acting as a Resource (LaaR) Large
  interruptible loads are permitted to participate
  in markets for spinning or responsive reserves
  (if under-frequency relays are present),
  non-spinning reserves, and some other services.
• Balancing Up Load (BUL)- ERCOT provides energy
  consumers with a capacity payment (based on the
  prevailing market price in the non-spinning
  reserve market) if they agree to submit offers to
  curtail at ERCOTs request to the balancing
  energy market

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LaaRs and the BULs

• At present, there are over 1,150 MW of LaaRs (the
  current limit) qualified to provide Responsive
  Reserves. Consequently, loads are competing
  against other loads to provide this service.
• For BULs, if you always bid 500/MWh, you would
  have been curtailed by ERCOT 48 15-minute
  intervals (12 hours) during the first 10 months
  of 2003.
• There are no subsidies provided. Load get paid
  the same as generators. Responsive Reserves has
  had an average value (per hour) of about
  10.00/MW.

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More DR in the Mid-Atlantic

• Wholesale market needs to properly value peak
  energy and reserves resources and not spread
  costs across all hours
• Transition to market-based retail rates with a
  separation between wires and commodity services
• Risk vs. Risk Analysis price volatility risk
  likely outweighed by the risk of not having
  demand responsive consumers.

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Post Transition Steps

• BGE class P customers nearly 100 switching
  rate. All large Maryland customers moving to
  wholesale POLR.
• Similar switching rates for New Jersey CIEP
  customers on wholesale POLR.
• Other states investing similar designs
• Further PJM market changes?