Addressing Restructuring’s Failures: Campaign – Or Not?

1. Addressing Restructuring’s Failures: Campaign – Or Not? Comments of Alan Richardson Joint Action Workshop January 9, 2006

2. Restructuring at the Crossroads • Overarching goals: • Ensure investment in infrastructure • Respect diversity • Foster well-functioning wholesale electric markets • Ensure J&R rates

3. Restructuring at the Crossroads • Working Around the Edges (Mid course corrections) • RTO regions: • LSEs need long term transmission • Mechanisms needed to get new x-mission • RTOs must be accountable for costs • RTOs must be accountable to consumers • RTOs should be boon to consumers, not a drag on them

4. Restructuring at the Crossroads • Non-RTO regions • Open regional planning • Joint ownership of G & T infrastructure • Respect regional practices, diversity

5. “Report Card” • Long term transmission D (on agenda) • Mechanisms for new infra. F • RTO Cost accountability B+ (Good rule) • Accountable to consumers D (Arrogant) • RTOs boon not drag D • Regional flexibility A (SMD dead) • Open planning C • Jt. Ownership D (on agenda) • Well functioning markets D • J&R rates F (Dark spread)

6. One Year Later • Consumers, economy, country need stable electric industry that: • Provides lowest rates, highest reliability • Sends consumers appropriate price signals • Plans for future, ensures adequacy of G&T • Market hasn’t/can’t produce for consumers • Structural barriers to electric competition • “Profit maximization and plentiful electricity are a contradiction in terms” – Swedish journalist Mattias Lundback

7. One Year Later • Market failures becoming increasingly apparent • Dark spread • Price caps and freezes disappearing • Industrials becoming skeptical • Alcoa closing • Portland Cement Assn et al filing with Market Competition Task Force • Others weigh in – Carnegie Mellon Electricity Industry Center • Politicians – R.I. Lt. Governor

8. One Year Later • Restructuring apologists – getting nervous • COMPETE – “electricity competition IS the public interest” • Global Energy Decisions – study on consumer benefits of competition • CERA – major study on benefits of restructuring • Energy Security Analysis study for PJM • ISO/RTO Council – Value of Ind. RGOs. • Etc.

9. One year later • Public power systems experience few if any benefits of restructuring • Public power systems and consumers experiencing many adverse effects • Board asks APPA to advise the public and policymakers – “the emperor has no clothes” • Executive Committee adopts work plan asking APPA to consider new campaign

10. One year later • Studies are seriously flawed, but solid rebuttals are lacking so far • Carnegie Mellon Electricity Industry Center taking comprehensive look • Articles and comments on failures of deregulation at www.energypulse.net under “industry structure” • More is needed

11. Campaign – or not? • Restructuring has not delivered on its promises • Industrial customers becoming critical • Consumers are waking up • Price caps and freezes are coming off • Politicians are or will soon be forced to address consumer concerns • Now is the time to seize the moment

12. Campaign Elements • Opposition research • Who is financing studies? • Which companies are making highest profits • Publicize consequences of the Dark Spread • Collect anecdotes • Op-Eds • Grassroots work with PPGP campaign

13. Campaign Focus • How do we measure success? Need unifying theme for APPA • Put the genie back in the bottle? • Difficult • Essentially applies only to organized markets and retail choice states • Address major problems in RTO regions to move from spot market to long term focus • Don’t let any more genies out of the bottle • Works for members in non-RTO regions

14. Campaign Focus • FERC not Congress • LSE – centric approach • Consistent with evolution of open access concepts and EPAct05 (See Morrison article – EJ 12/05) • EPAct92 protected monopoly service and vertical integration • Order # 888 had LSE focus • SMD – market focus • EPAct05 – back to LSE focus • Consistent with public power’s needs • Consistent with current FERC thinking?

15. Member views • APPA to “consider” new campaign – soliciting views from • Executive committee • LPPC restructuring task force • Joint action agencies • Members via FERC pieces conference • Others at every opportunity • Discuss with Board in March

16. Concluding thoughts • Large and difficult task • Goals must be clearly defined • Must help most or all APPA members • If members wish to move forward • Tasks must be identified • Funds must be raised

17. What is your advice?