Manchester Village, Vermont

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New England Conference of Public Utilities
Commissioners

• Manchester Village, Vermont
• 4-6 May 2008

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Whats Right (or Wrong) withNew Englands
Electricity Market?

• Hon. Clifton C. Below, Commissioner
• New Hampshire Public Utilities Commission

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Whats Right (or Wrong) with New Englands
Wholesale Electricity Market?

• NECPUC Annual Symposium
• May 6, 2008

www.epsa.org
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Percent Change in Average Electricity
Prices Restructured and Non-Restructured
States 1995 - 2007
Decoding Developments in Todays Electric
Industry Ten Points in the Prism, Dr. Susan
Tierney, Analysis Group, October 2007
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Percent Change in Average Electricity Prices RTO
and Non-RTO Market States 1995 - 2007
Decoding Developments in Todays Electric
Industry Ten Points in the Prism, Dr. Susan
Tierney, Analysis Group, October 2007
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Utility Construction Cost Estimate
Increases Original vs. Latest Estimates Billions
of Dollars

Rising Utility Construction Costs in Regulated
States Place Consumers at Risk, EPSA POWERFACT,
April 14, 2008
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• Dan Dolan
• Vice President,
• Policy Research Analysis
• Electric Power Supply Association
• 1401 New York Ave., NW
• 11th Floor
• Washington, DC 20005
• Telephone [phone]
• Fax [phone]
• E-mail ddolan_at_epsa.org
• Website www.epsa.org

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State of the Market61st Annual NECPUC
SymposiumMay 6, 2008James TorgersonPresident
CEOUIL Holdings Inc.
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Retail Rate Increases in New England

• Rates in restructured states have increased
  dramatically
• Rates in non-restructured states have increased
  much less
• Same RTO, same markets, so whats different?

The source of data is EIA 826 Sales and Revenue
Spreadsheet. This spreadsheet reflects
information derived from both Form 826 and Form
861. Data was provided by Power in the Public
Interest.
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Retail Rate Increases in the U.S.

• The trend holds true across the U.S.
• Customers are not seeing a benefit
• If there are indeed efficiency gains, whos
  benefiting?

Chart courtesy of Power in the Public Interest,
from January 28, 2008 presentation to Connecticut
General Assembly.
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The Latest Study Results Are In

• we find an average difference of 2 to 3 cents
  per kWh between prices and costs that is
  explained by restructuring rather than by
  increases in fuel prices.
• Carnegie Mellon Electricity Industry Center
  Working Paper CEIC-08-03, P26
• Virginia's new regulatory structure is a step in
  the right direction, one that protects its energy
  future and should serve as a model for other
  states.
• Doing Power Regulation Right Thomas Farrell
  II, CEO, Dominion Resources Washington Post,
  Monday, March 31, 2008 Page D03
• Unfortunately there is no statistical
  relationship between natural gas prices and the
  RTO/non-RTO differential.
• Connecticut Energy Policy Critical Times
  Critical Decisions McCullough Research, April 1,
  2008 PP6-7

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2008 NECPUC Symposium

• Whats Right (or Wrong) with New Englands
  Wholesale Electric Market ?
• A Demand Response Perspective

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Wholesale Competition Where have we been?

• New Price Transparency
• 8,000 MW of new generation added without cost
  overrun or performance shortfall risk being
  passed on to ratepayers (roughly 30 percent of
  New Englands peak load)

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Wholesale Competition Where should we go now?

• Demand Response Issues
• Integration in Capacity Markets (achieved)
• Integration in Energy Markets
• Integration in Reserve Markets

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Integrating DR in Energy Markets

• A Proposed Framework
• Fully integrate DR in energy markets as a proxy
  for real time pricing at the retail level
• Resources reducing load in real time receive the
  wholesale energy price as compensation for the
  curtailment service they provide

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Integrating DR in Energy Markets

• Caveats
• Demand Reduction must be real
• Available to all Demand Resources except Capacity
  Resources during FCM dispatch
• Benefits to load must outweigh cost

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Integrating DR in Energy Markets
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Integrating DR in Reserve Markets

• LFRM established in 2006 with Dispatchable Asset
  Related Demand (DARD)
• Definition of DARD precluded participation of
  virtually all demand response resources
• ISO creates Demand Response Reserve Pilot program
  in 2007 now committed to fully integrating DR
  into LFRM in 2010

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Integrating DR in Reserve Markets

• Four Issues of Concern
• Minimum Size of Resource (5 MW)
• Telecommunication Infrastructure
• Nodal Pricing for energy
• Hours of Availability
• 700 AM to 600 PM
• 700 AM to 1100 PM

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Wholesale Electricity Markets Challenges and
Perspectives

• Meredith Hatfield
• New Hampshire
• Office of Consumer Advocate
• www.oca.nh.gov
• NECPUC Symposium
• May 6, 2008

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NH Perspective

• Our hybrid model, with PSNH owning generation
  to meet about 2/3 of its needs, is keeping rates
  for their customers slightly lower than market
• We enacted an RPS but still must address
  transmission issues
• Pending bill would allow utilities to invest in
  DG and DR up to 6 of peak load with rate
  recovery (SB451)
• This legislative session was second in a row to
  say no to PSNH building new generation (up North,
  renewable). What happens next year?
• State EE potential study/RGGI as EE funding
  source

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Challenges

• Conflicting goals (low rates for consumers/high
  prices for market participants) put ISO in the
  middle while focused on managing the market, it
  must also work with diverse states focused on
  their own goals (rates, RPS, RGGI, transmission
  issues)

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Recent Criticisms of Markets

• APPAs Consumers in Peril (Feb. 08)
• Price increases in competitive wholesale
  markets exceed price increases in other regions
• As additional market mechanisms are added (SMD,
  LICAP in NY,RPM in PJM, FCM in NE, Reserves,
  Regulation, etc.) very little new construction
  occurs
• No demonstrated improvements in reliability
  concerns over price manipulation
• McCulloughs critiques (www.mresearch.com)
• Lack of transparency
• Market power
• ISOs are expensive to manage and operate
• Rates rising faster in deregulated states than
  regulated states

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So What Should We Do?

• Continue to refine market rules and FCM? (And
  hope that they will attract new generation and
  result in reasonable prices?)
• Work harder to get states in the region to work
  together.
• Educate the public about reality that prices are
  only going to increase, and about programs for EE
  and RE.
• Continue to invest in EE and RE (and address
  transmission issues)!
• Build on ISO scenario analysis planning process.

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ISO Scenario Analysis
Synapse Companion Report
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ISO Scenario Analysis
Rev to 33,000
Synapse Companion Report
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EE Potential

• NEEP 2005 Regional Study showed large reservoir
  of EE measures that we arent tapping
• Cost for NH utility programs less than 2 cents
• NH is working on multi-fuel potential study
• For consumers its the only easy option

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State EE Policies

• Some states have adopted specific EE targets
• NY15 by 2015
• NJ 20 by 2020
• IL 2 annual savings by 2015 (includes EE)
• MN 1 annual savings from EE
• PA 18.5 RPS (includes EE) by 2020
• NC 12.5 RPS (includes EE) by 2021
• VA reduce electric consumption 10 by 2022
• Some states have adopted general targets
• MA- all new load met with DR and EE
• CT, RI, CA and WA all cost-effective EE

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NY Response
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VT Study 2007
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MA Estimated quantities of EE
Massachusetts DOER Report 2005
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MA Cost-Effective Efficiency
Massachusetts DOER Report 2005
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Demand Response in FCM

• First auction
• 2,554 MW cleared, 8 of ICR
• 1,187 new MW cleared, 3.7 of ICR
• 660 MW were new EE resources, 2 of ICR
• Second auction
• CONE reduced from 7.50 to 6.00 per kw-month
• SOI indicates 855 MW of new demand resources
• Third auction CONE of 4.91/kw-month if FCA 2
  clears at the floor price

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Conclusions

• States looking for markets to demonstrate ability
  to ensure reliability and provide electricity at
  reasonable prices
• Continue progress to include demand resources
  into all markets
• Next year, if few new plants and even higher
  prices, what will the state legislatures do?
• New England needs to better understand and plan
  for a zero load growth future

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New England Market Comments

• NECPUC 2008
• Presented by Bob Stein
• May 6, 2008

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Disclaimer

• Any remarks are mine alone and not necessarily
  those of my clients

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New England Markets

• Improvements over the past several years
• Introduction of
• Standard Market Design
• Forward Reserves Market
• Regulation Market
• Still Waiting
• Spinning Reserve Market

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New England Markets

• Is the Capacity Market a Success?
• 2000 MW surplus of existing capacity cleared
• About three years load growth
• Payments to Generators below the floor at about
  4.25/kW-Month
• Will this incent orderly development of new
  capacity?

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Energy Market

• Price Formation
• Potential price distortions
• RMR units
• State programs to procure capacity
• Can there be a competitive energy market when
  some resources have substantial non-market
  revenue streams?

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Demand Response

• A substantial future resource
• Compensation must be commensurate with
  performance (as with all resources)

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Questions?
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I wish I had a brain
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New England Conference of Public Utilities
Commissioners

• Manchester Village, Vermont
• 4-6 May 2008