Small Customers at the End of Standard Offer

1. Small Customers at the End of Standard Offer Frank Gorke Energy Advocate Massachusetts Public Interest Research Group Electricity Roundtable 1/28/05

2. To summarize it all in one sentence: I am confident that the smaller customers will ultimately begin to reap the benefits of competitive wholesale and retail markets long before the Red Sox ever win another World Series. William Flynn, Chair, NYPSC, 10/7/04 Electricity Roundtable 1/28/05

3. Why do we care? • Wallet, pocketbook • Air and water • Economic development • Global warming Electricity Roundtable 1/28/05

4. National Association of State PIRGs July 2004 Toward a Consumer-Oriented Electricity System http://www.newenergyfuture.com/newenergy.asp?id2=13959 Electricity Roundtable 1/28/05

5. Findings: 10 yrs of restructuring • Few benefits for majority of consumers • 1993-2002 residential rates declined: consistent w/ trends • Factors other than choice • Lower energy prices and mandatory rate reductions/deferrals • 2001 and 2003: first year-to-year increases in nearly two decades Electricity Roundtable 1/28/05

6. Findings: 10 years of restructuring • Use up, efficiency down • Rates down 18%, bills only down 10% • 1993-2000 efficiency spending down 38% Electricity Roundtable 1/28/05

7. Findings: 10 years of restructuring • Degraded reliability, increased volatility • Double the disturbances • Natural gas expansion Electricity Roundtable 1/28/05

8. Findings: 10 years of restructuring • Costs on the way • Deferred rates • Massive transmission system expansions • Natural gas dependency • Financial instability, greater risk  higher costs Electricity Roundtable 1/28/05

9. Findings: 10 years of restructuring • Among states that have deregulated retail sales there currently is only minimal active competition for the business of residential customers. Electricity Roundtable 1/28/05

10. There is little reason to think that the restructuring experiment will produce improved results in the future. The problems with the current regime are systematic. … we recommend total abandonment of restructuring and a more thoroughgoing embrace of markets than contemplated in current restructuring initiatives. But we recognize that such reforms are politically difficult to achieve. A second-best alternative would be for those states that have already embraced restructuring to return to an updated version of the old, vertically integrated, regulated status quo. Rethinking Electricity Restructuring Van Doren and Taylor, Cato Institute 11/30/2004 (emphasis added) Electricity Roundtable 1/28/05

11. Small customers sometimes have benefited from rate guarantees in restructuring legislation, but they have received little direct benefit from retail competition itself. … Retail distribution should remain a responsibility of utilities under state and local regulation, along with electric energy resource portfolio management for residential and small business customers…. [B]y “electric resource portfolio management” the commission means assembling a diversified mix of short- and long-term resource commitments and other risk management tools, in order to sustain the economical and reliable electricity services that a healthy economy requires. Reviving the Electricity Sector National Commission on Energy Policy, August 2003 Co-chaired by John Rowe, CEO of Exelon and former CEO, NEES Electricity Roundtable 1/28/05

12. Toward a Consumer-Oriented Electricity System National Association of State PIRGs July 2004 Where do we go from here? http://www.newenergyfuture.com/newenergy.asp?id2=13959 Electricity Roundtable 1/28/05

13. Small consumers deserve: • A reasonably and stably priced, regulated electricity product, and • The ability to aggregate and negotiate for electric service Electricity Roundtable 1/28/05

14. Massachusetts context • DTE Proceeding, DS principles • Legislature’s Renewable Energy Standard • Governor’s Climate Protection Plan • Regional power sector carbon caps Electricity Roundtable 1/28/05

15. Where do we go from here? • Protect consumers basic rights • Portfolio management • Aggressive energy efficiency policies • Long term contracts for renewable power Electricity Roundtable 1/28/05

16. Protect consumers’ rights • Access to electricity at equitable, just, reasonable rates • Low-income assistance • No slamming • No above-market rates for sake of market • Aggregation Electricity Roundtable 1/28/05

17. Portfolio Management • Market doesn’t just mean short-term • Irresponsible not to use available tools to get best result • Contract term diversity • Biewald et al, Portfolio Management, 2003 • Manage for customer migration and market volatility Electricity Roundtable 1/28/05

18. Aggressive Energy Efficiency PoliciesNEEP 11/2004 Electricity Roundtable 1/28/05

19. Renewables and Efficiency Lower Gas Prices • 2005 Lawrence Berkeley Lab study (Wiser, Bolinger, St. Clair) • 1% demand reduction  .8-2% wellhead price reduction • NE RES  $34 – 85 million NPV regionally • NE RES  $625 million – 1.6 billion national consumer benefits Electricity Roundtable 1/28/05

20. Sweet spots • No downside to efficiency; major downsides to waste • Long term contracts for renewables make much more sense than current practice • High capital, low operating • $50? Or $30? Electricity Roundtable 1/28/05