Retail Competition: Managing a Difficult Transition

1
Retail CompetitionManaging a Difficult
Transition
David L. OConnor Commissioner Massachusetts
Division of Energy Resources (DOER) Presentation
to National Governors Association Executive
Policy Forum on Electric Restructuring April 6,
2001
t\pub_info\presentations\restructuring\NGA April
6, 2001.ppt
2
Restructuring Goals in Massachusetts

• Reduce electricity prices to all customers
• Provide choice of supplier to all customers
• Maintain the reliability of the electric system
• Maintain the quality of regulated services

3
Settlements, then the Law

• Roundtable Negotiations 1995
• Power Choice 1996
• MECo Settlement 1996
• BECo EUA Settlements 1997
• Legislation 1997
• Retail Access Day March 1, 1998

4
Key Provisions of Massachusetts Act

• 10/15 Rate Reduction
• Choice of Power Supplier
• Stranded Cost Recovery
• Standard Offer and Default Service
• Public Benefit Programs
• Consumer Protection and Education
• Power Plant Siting

5
Results So Far

• Consumers Saved at Least 1.5 Billion
• Utilities Divested 90 of Plants
• Stranded Costs Reduced by 30
• Consolidation of Distribution Companies
• Many new Power Plants being Built
• Retail Market Developing Very Slowly
• Competitive Suppliers Focused on Large C I
• Municipal and Other Aggregation Groups Formed

6
Standard Offer Service

• Power supplied to eligible customers at fixed
  rates
• Price at least 10 lower than pre-restructuring
• Generation costs increase / stranded costs
  decrease
• Customer may choose competitive supplier any
  time
• Recent price increases due to fuel costs
• Ends in 2005

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Massachusetts Standard Offer Prices Are Low But
Going Up
Cents/kWh
Source National Grid
8
Standard Offer with Fuel Adjustment
Source DOER/Distribution Company Filings
9
Standard Offer and Stranded Costs
Source DOER/Distribution Company Filings
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Default Service

• Provides any customer with power at any time
• New customers returns from competitive
  suppliers
• Through Dec. 2000 equal to Standard Offer price
• January 2001 average monthly market price
• Power supply purchases on 6 and 12 month basis
• Continues indefinitely

11
Default Service Prices Are Going Up Too
Wholesale Generation
Default Service Retail (Residential)
Source WMECo 2000 Reconciliation Filing DOER
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What Massachusetts is Trying to Do

• Increase retail response to peak prices
• Diversify utility power purchases to hedge price
  risk
• Help retail suppliers reach default customers

13
Energy Efficiency and Load Management Reduce
Clearing Prices
Wholesale Prices would have been considerably
higher on June 7, 1999 without the benefits of
Load Management and Energy Efficiency
Source ISO-NE, DOER Analysis
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New England Demand Response ProgramSummer 2001

• Up to 600 MW of reductions (2.5 of peak)
• 3,000 to 5,000 large CI customers
• Demand reduction or distributed generation
  qualify
• ISO-NE pays Load Servers (LSEs) who pay
  customers
• LSEs paid reserves price for all hours
• LSEs paid energy price for dispatched hours

15
Differences in Utility Power Supply Purchasing
Summer 2000
Contracts, Own Generation ()
Spot Market ()
California 45
55 New England 80 20
Source Anjali Sheffrin, Presentation CMR-Global
Market Power Mitigation, October 4, 2000
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Changes to Default Service Procurement
Monthly Prices
Average Price
8.4
6.4
Cents/kWh
Source MECO Filings with MA DTE
17
Default Service Customers Are Increasing
Source DOER Customer Migration Numbers
18
Distribution Companies Co-Market with Retail
Suppliers
Distribution Company
Default Service Customers
Wholesale Suppliers
Retail Suppliers
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Reports and Information

• Available at DOER Website
• www.state.ma.us/doer
• Customer Migration Data
• 1998 Market Monitoring Report
• 1999 Market Monitoring Report