Facilitating Customer Choice in a Changing Environment

1. Facilitating Customer Choice in a Changing Environment Institute for Regulatory Policy Studies May 10, 2007 Mike Ratcliff BlueStar Energy Services, Inc.

2. BlueStar Energy Services, Inc. • Largest Self-funded electric retailer in the USA • Currently, 21st Largest ARES in the USA • Certified Electric Supplier: Illinois, Maryland, Michigan, New York, and Washington D.C. • Commercial and Industrial • High level of interest in Residential

3. The Illinois C&I Customer • Choice: • Products: Fixed Price, Index Price, Blend or Combination • Price Certainty (Risk Averse, limited load control) • Index (Risk tolerant, load control ability) • Transmission, Ancillary Services, and Capacity • DST: Single or Dual bill • Accurate, timely, and customized billing • Educated ARES Sales Representative • Responsive Customer Service • Payment Flexibility: Check, ACH, Credit card • Supply Reliability is a “given”

4. The Illinois Residential Customer wants many of the same things as C & I customers: • Choice: • Product: Fixed Price, Real Time Pricing, Green vs Brown • Price Certainty (Risk Averse, limited load control) • Real Time Pricing • Transmission, Ancillary Services, and Capacity • DST: Single or Dual bill • Accurate, timely, and simplified billing • Educated ARES Sales Representative • Responsive Customer Service • Payment Flexibility: Check, ACH, Credit card • Supply Reliability is a “given”

5. Less Risk Averse More Suppliers More Price Certainty Simplified Billing

6. Current residential status “No Real CHOICE” • No Choice: Suppliers, Fixed versus RTP, Green power versus Brown, etc… • Captive customer • Poor customer service • No Savings Opportunities

7. Illinois Regulatory & Legislative Environment • Capped Rates are NOT the answer, COMPETITION is the only true and tested mechanism for lowering prices. • Current Auction Methodology NOT the answer • Similar to the old MVEC in regard to • One time Market “shot” • Sometimes promotes competition, sometimes may not….

8. Competition • Lower Prices over time • Promotes Innovation • Better Customer Service

9. POLR Supply • Utility Purchased Gas Adjustment Model • Monthly rates based upon Actual Utility (POLR) costs through an integrated planning process • ICC familiar with methodology and reconciliation issues • Maintains utility economic indifference • Promotes Competition • Must use an ARES to fix long term supply costs • Avoids much of the “second guessing” which the Auction process can’t avoid since it is market based: • What is the best time of the year to hold the auction? • How long should the term be? • Is there “gaming” going on? • How much of the price is due to migration, credit, legislative and regulatory risk?

10. Barriers to Serving Residential Load • Legislative Uncertainty • Bad Debt and Credit Risk • Billing – Economics of Scale • Utility preparedness • DASR process • EDI and Metering issues • Electricity Supply and Capacity “forward” market prices

11. BSE Suggestions to Promote Residential Competition • Illinois utilities required to have standard EDI format • For the first 12 months utilities provide a “guaranty” of receivables (bad debt already built into approved base rates) • This is a compromise: Utilities don’t have to worry about Purchase of Receivables (POR) and related administrative concerns • Ameren joins PJM (MISO is not designed to accommodate Load Serving Entities or LSEs) • Serving load in Illinois should not be EXTREMELY different, from an operations perspective, depending upon whether load is north or south of I-80 • Fixed Distribution loss factors as opposed to hourly • PGA Methodology for POLR

12. Closing Thoughts • Competition is the answer • Residential choice CAN work in Illinois • Illinois Utilities must standardize: • Regional Transmission Organizations • At the very least RTO’s need to adopt “tried and tested” standard operating practices • Distribution Loss calculation methodology (Fixed vs Hourly) • EDI Format