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Retail Competition: Managing a Difficult Transition

Retail Competition: Managing a Difficult Transition. David L. O’Connor Commissioner Massachusetts Division of Energy Resources (DOER) Presentation to National Governor’s Association Executive Policy Forum on Electric Restructuring April 6, 2001.

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Retail Competition: Managing a Difficult Transition

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  1. Retail Competition:Managing a Difficult Transition David L. O’Connor Commissioner Massachusetts Division of Energy Resources (DOER) Presentation to National Governor’s 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

  7. Massachusetts Standard Offer PricesAre Low But Going Up Cents/kWh Source: National Grid

  8. 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

  9. Default Service Prices Are Going Up Too Wholesale Generation Default Service Retail (Residential) Source:WMECo 2000 Reconciliation Filing & DOER

  10. 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

  11. 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

  12. New England Demand Response ProgramSummer 2001 • Up to 600 MW of reductions (2.5% of peak) • 3,000 to 5,000 large C&I customers • Demand reduction or distributed generation qualify • ISO-NE pays Load Servers (LSE’s) who pay customers • LSE’s paid “reserves” price for all hours • LSE’s paid “energy” price for dispatched hours

  13. Differences in Utility Power Supply Purchasing Summer 2000 Contracts, Own Generation (%) Spot Market (%) California45 55 New England 80 20 Source: Anjali Sheffrin, Presentation: CMR-Global Market Power Mitigation, October 4, 2000

  14. Changes to Default Service Procurement Monthly Prices Average Price 8.4 6.4 Cents/kWh Source: MECO Filings with MA DTE

  15. Default Service Customers Are Increasing Source: DOER Customer Migration Numbers

  16. Distribution Companies Co-Marketwith Retail Suppliers Distribution Company Default Service Customers Wholesale Suppliers Retail Suppliers

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

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