Restructured Electricity Markets Are Benefitting Consumers

1. Restructured Electricity Markets Are Benefitting Consumers William L. Massey Counsel to the COMPETE Coalition Presentation to NASUCA Mid-Year Meeting Seattle, Washington June 11, 2013

2. COMPETE Coalition • More than 700 electricity stakeholders • Customers • Suppliers • Traditional and clean energy generators • Transmission owners • Trade associations • Technology innovators • Environmental organizations • Economic development corporations • COMPETE supports well-structured competitive electricity markets for the benefit of consumers www.competecoalition.com

3. COMPETE Customer Members • “Competition in Maryland’s electricity market has allowed my institution to achieve significant savings for the electricity we consume and improve our balance sheet. It has also allowed me to realize savings in my electricity costs at home. Competition is a win-win for consumers and the economy.” Van R. Reiner, President and CEO, Maryland Science Center • “As a leader in affordable, senior housing and health care, with 330 living communities under management across the nation, our organization greatly benefits from the energy cost savings we achieve through participation in competitive electricity markets. But competition is more than just lower prices – competitive markets mean better customer service and innovative products and services.” Alan Mileti, Utility & Procurement Specialist, National Church Residences • "Competitive markets are a successful key ingredient for Wal-Mart to manage its energy needs and reduce costs in this ever changing environment, allowing us to pass those savings on to our customers in the form of low prices.“ Angela Beehler, Senior Director, Energy Regulation and Legislation, Wal-Mart Stores

4. COMPETE Customer Members • “Electricity competition delivers lower prices, better service and a variety of pricing options that are tailored to our specific needs and electricity usage. With 5,798 company and franchise restaurants throughout the nation, our experience is that competition in electricity gives us much needed certainty to plan and manage our budget.” Russell S. Subjinske, Senior Director of Energy, Wendy’s Quality Supply Chain Coop, Inc. • "Among the cornerstones of our greenhouse gas reduction and sustainability initiatives are the benefits Safeway receives in competitive power markets. Customer choice for energy supplies has enabled Safeway to be a pioneer and leader in this area. Competitive energy markets are crucial to our business, and the COMPETE coalition is one of our key partners in the ongoing effort to improve and expand competitive energy markets across North America. These markets help businesses like ours provide wide-ranging benefits to our customers, employees and the communities we serve”. George Waidelich, Vice President, Energy Operations, Safeway

5. “Restructured” Not “Deregulated” Markets • Prices charged must be in accordance with regulatory policies that ensure against market power. • Wholesale markets administered by ISOs and RTOs are overseen by independent market monitors and FERC’s enforcement office. • Substantial penalties are assessed for violations. • Regulators ensure adequate resources are in place, regardless of financial conditions. • Bulk power system is subject to comprehensive reliability regulation. • Utilities may not merge or acquire or dispose of assets without prior regulatory approval. • Financial transparency is required.

7. Customer Value • Supply side options • Competitive generating plants (efficiency, innovation) • Customers can shop for desired generation mix (green energy, etc.) • Demand side options • Demand response (DR) providers offer innovations allowing consumers to reduce or modify electricity consumption • Customers can earn revenue from selling DR into market • Displaces need for costly new generation (PJM’s DR = 16 to 21 base load power plants) • Mitigates upward market price pressures (adds elasticity) • Supports reliability (NERC)

8. Customer Value • Financial risk is borne by service providers, not customers • Lowers customer’s financial risk • In monopoly markets, risk of cost overruns shifted to consumers • Providers focus on individual customer needs; not “one size fits all” as in monopoly service • Flexible contract lengths and other terms • Risk management products (fixed prices, flexible or indexed prices, etc.) • Renewable energy content • On-site services (building retro-commissioning, on-site generation, etc.)

9. Customer Value • Increased energy efficiency • Means lower costs to businesses and lower prices to their customers • Customer revenue from selling services into the market • Enabled by innovative storage technologies and demand response services

10. Additional Benefits of Competitive Markets • Fewer new generation plants needed • Suppliers have incentives to increase operational efficiency • Customers have ability to manage portfolios for increased efficiency • Reliability • Competitive markets have proven to be reliable and ensure resource adequacy • Customers are in charge • Customers rather than regulators or monopolies decide such issues as pricing, risk, generation mix, contract length, green power, demand response options and customer service • Environmental • Choice and good price signals drive customer demand for clean energy solutions

11. Retail Market Experience • Between 2008 and 2011 (a time of flat electricity demand growth): • Electricity load served competitively grew 40% • Customer accounts served under retail choice grew over 53%; residential accounts grew by over 54% • Ohio: • In 3 service areas, competitive suppliers serve 67% - 75% of residential customers’ energy (in the other 3 areas: 22% - 46%) • In same 3 areas, competitive suppliers serve 76% - 85% of total energy (in the other 3 areas: 49% - 72%) • Connecticut: • 44% of residential customers have switched to competitive suppliers • 83% of medium and 92% of large C&I customers have switched • Pennsylvania: • Competitive suppliers now serve 36% of residential load and 65% of total load • Number of shopping customers increased 33% (Jan. 2012 - Feb. 2013)

12. Retail Market Experience • Illinois: • More than 60% of electricity usage served by competitive suppliers • Municipalities are aggregating power loads to bargain for best deals • Michigan: • 10% cap on shopping costing more than $130 million in annual savings • Over 10,000 customers on waiting list for access to competitive suppliers • Arizona: • Commission is gathering input on whether to introduce retail competition • Indiana: • Legislature has directed a study of electric customer choice programs

13. Wholesale Markets:RTOs Support Retail Markets • RTOs provide the best platform for competitive retail markets • Timely price signals that reflect market fundamentals • Independent administration  level playing field • Large regional scope  a wide array of sellers and aligns planning and operations with physics • Independent monitoring • Every competitive retail electricity market is in the footprint of an RTO

14. Regional Transmission Organizations

15. RTOs: Value to Customers • Wholesale prices for 2012 in many RTO markets are at lowest levels in a decade or longer: PJM, NY ISO, ISO-NE, ERCOT & CAISO • PJM: prices fell 23% during 2012 • NYISO: 2012 prices 52% lower than in 2008 • ISO New England: in 2012, prices fell 23% and total amount paid for electricity fell more than $1 billion. • To extent driven by lower fuel prices, lower energy prices show the markets are performing well (prices reflect fundamentals). • Efficiencies produced by RTO markets are keeping retail prices affordable and saving consumers billions of dollars

17. Additional RTO Benefits • Innovative resource developers attracted to RTO markets • Fair rules, large regional scope, and transparent locational prices that correctly value energy. • Broad regional scope and diverse resources provide economical balancing services for variable generators. • Renewable resources • Over 76% of U.S. installed wind capacity is moving to consumers within RTO footprints. • Demand response • Almost 32,000 MW available in U.S. RTOs (about 7% of their peak) • Innovators are installing advanced technologies in RTO markets • State-of-the-art storage devices (batteries and flywheels) provide efficient way to quickly adjust generation to balance demand

18. RTOs Are Expanding • Entergy companies joining MISO • $1.4 billion expected savings in first 10 years • East Kentucky Power Cooperative joined PJM • Almost $132 mil­lion expected savings in first 10 years • Nevada cooperative (Valley Electric Association) and California municipality (Colton) joined CAISO

19. Competitive Electricity Markets: Resource Adequacy • Markets need a forward-looking mechanism to ensure future reliability - - regardless of market structure Forward capacity markets (PJM, ISO-NE) • Competitive auctions to identify least-cost combination of resources to meet future reliability needs 3 years ahead • New generation, existing generation uprates and retirement deferrals, DR • Objective is not solely to add new capacity • Investors will commit new capacity when prices above new plant costs • Investors bear the risk of bad decisions.

20. Competitive Electricity Markets: Resource Adequacy & Emission Limits - PJM • Announced retirements of nearly 14,000 MW of coal-fired generation over 3 years • Capacity market → record amounts of additional generation capacity • 5,346 MW: 2015-2016 delivery year (May 2012 auction) • 5,463 MW: 2016-2017 delivery year (May 2013 auction) • 2016-2017 delivery year auction results: • Prices in three delivery areas down 29%, 56% and 68% (price in transmission constrained NJ up 31%) • Capacity imports nearly doubled • 12, 408 MW of DR; 1,117 MW of energy efficiency • Reserve margin: 21.1% (5.5% above target)

21. Competitive Electricity Markets & Transformative Technologies • Innovation may transform the industry • Distributed generation (e.g., rooftop solar), storage, prices to devices, electric vehicles, smart grid, DR and micro-grids • Consumers get more alternatives to meet their energy needs • Fosters more competition and reliance on markets • Innovation is best facilitated by opportunities and pressures of competitive markets • For competitive services, consumers should get to choose products and suppliers, and providers should have pricing freedom • Regulatory policies • Keep entry barriers low • Ensure fair market rules and a level playing field

22. Questions ?