Energy Retailers Association of Australia

1
Cameron OReilly, Executive Director
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ERAA Membership

• Total membership of 20 diverse retailers 14
  full members (board representation) and 6
  associates
• National gentailers Origin, AGL
• Regionally significant gentailer TRU
• Regionally significant gas retailer - Alinta
• Government owned/stapled with regional
  significance Aurora, Integral, Energy
  Australia, Country Energy
• Medium sized retailers Simply Energy (IP),
  Victoria (Infratil)
• Niche Momentum (Hydro), Red Energy (Snowy
  Hydro), ERM Retail, Jackgreen
• Stand-alone Australian Power Gas
• Single jurisdiction ActewAGL, Ergon, Synergy,
  Horizon, NT Power Water

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Eastern Australias Retail Markets

• Australia has some of the most competitive retail
  energy markets in the world
• Has large, medium and niche retailers
• Some are vertically integrated between generation
  and retail
• Connection between retail margin/competition
• Need to have competitive wholesale market and
  liquid contract market to support retail
  competition
• Despite progress on energy market reform
  regulation is a barrier to entry, especially
  retail price regulation
• Non-price regulation has a disproportionate
  impact on smaller retailers National Energy
  Customer Framework (NECF) a test for Governments
  on regulatory burden
• There is continual growth in green regulation
  that impacts retailers smaller retailers are
  impacted disproportionately

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Retail Competition
Source VaasaETT, 2008 World Retail Energy Market
Rankings 4th Edition
5
Small Monthly Transfers State Comparison
Source Australian Energy Market Operator
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ERAA priority issues - 2010

• Pass through of the cost of Carbon Pollution
  Reduction Scheme (CPRS) and Renewable Energy
  Target (RET) in an environment of continuing
  retail price regulation (risks to retailers
  identified by Farrier Swier Report)
• Progressing phase-out of retail price regulation
• NSW market reform liquidity in generation
• Implementing National Energy Customer Framework
  (NECF)
• Prudentials and credit requirements
• Short Term Trading Market (STTM) for gas
• Smart meters Victorian roll-out in particular

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ERAA Farrier Swier Report

• Report identified serious risks to retailers from
  climate change policy where price regulation
  exists
• Carbon market immaturity
• Changes in merit order
• Wholesale volatility
• Fuel costs gas in particular link to LNG
• Risk of generator distress/failure opens up
  counter party hedge failure

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Executive Director Fulbright Scholarship

• Based at University of Texas at Austin from
  February to June, 2009 Center for International
  Energy Environmental Policy
• Project focused on US approach to reducing
  emissions from the stationary energy sector
  common challenges with Australia
• As State capital of Texas Austin allowed for
  discussions with Public Utilities Commission of
  Texas (PUCT), ERCOT, Austin Energy, retailer
  groups, and major generators
• Also visited Houston (guest of NRG/Reliant/Apache)
  and Dallas (guest of Oncor part of old TXU)
  visited South Texas Nuclear Plant
• Spent a week in California at Stanford University
  looking at energy efficiency and venture capital
  support for renewable energy and electric
  vehicles hosted by Project Better Place
• Made two visits to Washington and spoke to peak
  groups like Edison Electric Institute, American
  Gas Association, Electric Power Research
  Institute, Nuclear Energy Institute, US Chamber
  of Commerce and Federal Energy Regulatory
  Commission (FERC)

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The US context

• First year of Obama Administration which is
  losing popularity Republicans even more
  unpopular
• Economic downturn in US very serious as is
  budgetary situation makes cap and trade
  difficult in 2009
• Healthcare reform will receive priority over
  climate change
• No doubt that Obama is serious about climate
  change has used his own office to push
  legislation and made key appointments that
  reflect commitment Steven Chu, Carol Browner,
  Todd Stern
• So called Waxman-Markey bill passed narrowly in
  the House 219-212 with 44 Democrats opposing
• Politics of US Senate even harder than the House.
  Boxer-Kerry Clean Energy Jobs and American Power
  Act will require 60 votes to stop filibuster
• While oil and gas industry is largely in the Gulf
  of Mexico (Texas in particular) coal states are
  dispersed and have many Democrats

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Current initiatives

• Australia
• Draft legislation before the Australian
  Parliament to establish a cap and trade emissions
  trading system by 2011 (CPRS). Scheme coverage
  includes 75 of emission sources
• Targeted reduction in emissions of 5 below 2000
  level emissions by 2020, or up to 25 if a new
  global agreement is reached. Ultimate aim of 60
  reduction in emissions by 2050
• Some issuance of free permits to EITE industries
  based on energy intensity and to badly affected
  generators
• National renewable energy target of 20 by 2020
  to be legislated
• Substantial government support for carbon capture
  and solar

• United States
• Waxman/Markey cap and trade legislation passed by
  House aims for emission reductions of 17 below
  2005 levels by 2020
• Ultimate aim of 83 reduction from 2005 emission
  levels by 2050
• Waxman-Markey initially allows 85 of permits to
  go to affected industries for free 15
  auctioned
• Boxer-Kerry legislation released by Senate aims
  for 20 reduction by 2020 and 80 by 2050 more
  pro nuclear than House
• Senate legislation only at committee stage and
  will have to get through six committees prior to
  vote
• Senate legislation unlikely to reach vote prior
  to Copenhagen needs 60 votes to stop filibuster

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US coal States based on production

• Wyoming - 39 of output
• West Virginia 13.4
• Kentucky 10
• Pennsylvania
• Montana
• Texas
• Colorado
• Indiana
• Illinois
• North Dakota
• 15. Ohio
• Source Energy Information Administration (DOE)

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United States national greenhouse gas emission
sources
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Australias national greenhouse gas emission
sources
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Electricity Generation Sources
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The Greenhouse gas situation in Australia and the
US

• Both countries have generally had domestic energy
  security (oil an exception since 1970 in the US)
• Both countries depend heavily on fossil fuels
  EU only gets 30 of electricity from fossil fuels
  (source esaa)
• Stationary energy contributes more to Australian
  emissions than it does to US emissions
  Australia less diversified electricity sector
• The transport sector contributes more to US
  emissions far larger vehicle fleet
• Industrial processes contribute more to US
  emissions
• Agriculture still a relatively large emitter in
  both countries compared to its share of Gross
  Domestic Product (GDP)
• Both countries are Federations policies aimed
  at reducing emissions involve three levels of
  government

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Factors mitigating against US climate bill

• State of the economy
• Climate change not as big an issue with US voters
• Almost universal opposition from Republicans
• Need for 60 votes to stop a filibuster means
  every Democrat Senator must support legislation
• Democrat Senators from coal states and
  manufacturing states will be nervous
• Democrat Senator from Louisiana, Mary Landrieu,
  led opposition to earlier Liberman-Warner bill
• US will want to see developing nations as part of
  global deal seems difficult to achieve

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Factors in favour of climate bill

• President prepared to use his authority to
  support legislation on climate change
• General concern about dependence on imported
  fossil fuels has seen right wing individuals
  support renewables e.g. The Pickens Plan
• Wind power likely to grow in Republican States
• US likes to take leadership role on major issues
• US has nuclear power industry that can be ramped
  up
• Support for CCS can win over coal state Democrats
• Some major US companies want legislation to
  resolve uncertainty (USCAP)
• The US Government is virtually in control of the
  car industry which is a major source of emissions

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What a carbon price would mean for Texas

• Texas is the highest greenhouse gas emitter in
  the US (11.5 of US emissions)
• Texas, if a nation, would be the 7th largest
  emitter in the world
• Texans consume 60 more energy than the average
  American
• Texas is the largest US producer of oil
• Texas is the largest refiner of oil in the US
• Texas is the largest user of coal
• Texas is the major US producer of natural gas
• Texas is the base for a large amount of energy
  intensive industry
• Texas has 25 of the US cattle herd

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What you may not know about Texas

• Texas emissions have a lot to do with industries
  that export to the rest of the US
• Texas energy generation is less dependent on coal
  than the rest of the country
• Texas is now the largest producer of wind power
  in the USA (in top 6 in the world)
• Texas was the second State to introduce a
  renewable portfolio standard 1999 when the
  Governor was George W. Bush
• Texas has been using CO2 for enhanced oil
  recovery for many years
• Texas is leading the country in the roll-out of
  advanced metering infrastructure

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Texas Installed Generation Capacity 2009
Source Electric Reliability Council of Texas
(ERCOT) - ERCOT Quick Facts May 2009
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Texas electricity Energy produced 2008 source
ERCOT

• Coal 37
• Gas 43
• Nuclear 13
• Wind 5
• Other 2
• Texas is the largest electricity market in the
  USA (10 of US electricity use), the highest user
  of coal for electricity generation and the
  biggest wind producer

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Energy market structure in Texas

• Real time wholesale electricity market covering
  85 of States load and vast majority of
  population
• Texas based market/grid operator - ERCOT
• Competition in generation between independent
  power producers
• Five major distribution companies Centerpoint
  (Houston), Oncor (Dallas-Fort Worth), Texas New
  Mexico Power Company, AEP North, AEP Central
• Some regional municipal monopolies e.g. Austin
  Energy
• Competition in retail outside monopoly areas 80
  retailer licenses deregulated prices since 2007
• Texas in top ten retail markets for customer
  churn unique in USA
• Rest of US more interconnected and therefore
  subject to Federal regulation (FERC) of
  transmission and market operation

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The Texas and Australian grids

• Australias NEM
• 18 million people
• 47,000 megawatts of generation
• Peak of 34,500 megawatts July, 2008
• 260 generation units
• 25,000 miles of transmission lines
• 11.5 billion in electricity traded

• Texas ERCOT Grid
• 21 million people
• 81,000 megawatts of generation
• Peak of 62,000 megawatts 4 August, 2008
• 560 generation units
• 38,000 miles of transmission lines
• 31.5 billion in electricity traded

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Recent Retail History in Texas

• Retail price regulation price to beat ended
  January, 2007
• By June 2008 2.9 million Texans had switched
  provider including 2.4 million residential (not
  all Texas customers are contestable)
• Spike in wholesale gas prices in first half of
  2008 saw major retail price increases
• Even without price caps four retailers failed in
  mid 2008 triggering ROLR Regulator reviewing
  ROLR scheme
• Even large retailer Reliant Energy got into
  trouble
• Reliant now purchased by NRG so vertical
  integration increasing TXU largest retailer
  also has generator arm
• With wholesale gas prices declining retail
  outlook has improved
• Recession likely to keep gas prices low for some
  time

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Texas Wind

• Texas in 2007 surpassed California in wind
  generation
• Growth started with portfolio standard in 1999
  (2,000 megawatts for renewables wind dominated)
• 2015 portfolio standard increased to 5,000
  megawatts (500 megawatts to be non-wind)
• Current wind installed far exceeds target and is
  nearing 9,000 megawatts (20 of Australias total
  generation)
• Regulator (PUCT) and market operator (Ercot) have
  committed to 5 billion investment in four
  competitive renewable energy zones (CREZ) in West
  Texas could provide for 15 gigawatts of new
  renewable power
• Location of wind zones away from major population
  centres reduces community issues communities
  are supportive
• Wind is now supported by conservative rural
  communities
• Wind in West Texas leading to significant periods
  of negative prices (mainly at night) and
  beginning to impact thermal generators
• ERCOT moving to nodal market in 2010 to try and
  deal with congestion

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Some lessons for Australia out of Texas

• Gas based retail markets subject to significant
  volatility also witness UK sometimes makes it
  difficult to defend competition
• Gas market design critical for the future in
  Australia
• Texas competitive wholesale market has seen
  highest growth in renewables competitive
  markets good for renewables
• However those intermittent renewables now
  creating problem for other generators and market
  operator
• Price caps have allowed majority of retailers to
  manage risk of high prices but not all ROLR
  still important
• Significant constituencies still argue against
  competition and deregulation in the most
  pro-business, small government US State
• Competitive producers now got together in
  Washington to argue for the benefits of
  competition facing off against monopoly
  municipal providers

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Texas versus UK relevance to Australia

• TEXAS
• An electricity market with large amounts of gas
  fired generation
• A hot climate with significant summer peaks
• Large number of stand alone retailers and
  independent power producers
• Housing stock usually detached
• Large area with significant transmission
  challenges

• UNITED KINGDOM
• A market in which gas use exceeds electricity
• A cool climate with significant winter peaks
• Industry dominated by 6 vertically integrated
  utilities - small retailers virtually disappeared
  from market
• Housing stock usually attached /high density -
  small land mass
• However social policy much more like Australia

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