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Presentation to the Restructuring Roundtable January 30, 2004

Presentation to the Restructuring Roundtable January 30, 2004. BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY. James C. Kennedy, Esq. The Process.

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Presentation to the Restructuring Roundtable January 30, 2004

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  1. Presentation to the Restructuring RoundtableJanuary 30, 2004 BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY. James C. Kennedy, Esq.

  2. The Process • The release of the plan last Wednesday was the culmination of the 2 ½ year ‘cracker-barrel’ process. • During the ‘cracker-barrel’ process we met with all interested parties. In fact, we held 12 meetings over the 2 ½ years, both in Boston and across the Commonwealth. • This is really the long winded way of saying that the release of the ‘Bosley Plan’ should not have caught anybody by surprise. The process has been, and continues to be, open and deliberative.

  3. The Plan • The plan is deliberately broad in scope. In fact, our initial plan was to put out a draft of legislative language. However, as you can see, we opted instead for the ubiquitous PowerPoint presentation. We did so for two reasons: • First, we believed that it would be the best way of eliciting constructive comments. • Second, is timing. We need to get this legislation enacted before the budget debate.

  4. The Plan—The Specifics • This plan contemplates the peaceful co-existence of the incumbent utilities and competitive retail suppliers. The plan addresses residential and small business customers only. Large C+I (those above 100-200 kw) would remain on default or competitive supply.

  5. The Plan—Structural Separation • The plan would see the structural separation of the incumbent utilities’ retail and distribution functions. The structurally separated retail affiliate of the incumbent utility would be responsible for: • 1) LRS service (i.e., Default Service); • 2) MBIS; and • 3) it would be permitted to bid in the descending clock auction for its service territory.

  6. The Plan—The Auction • The proposal calls for a descending clock auction of Standard Offer and Default customers into a competitive retail market. It would essentially be a form of opt-out aggregation. Winners of each descending clock auction would provide “Basic Electric Service” (BES) for a period of three years to a block of customers. Here are the highlights of the auction process: • All standard offer and default customers in each service territory will be divided into several groups of approx 250,000. Competitive suppliers (including the utility affiliate) will then have the ability to bid for each group pursuant to a descending clock auction. The winner of each auction will provide BES at a 3 year fixed price. Additionally, there would be separate auctions for residential and small C+I customers. • One competitive retail service provider would be prohibited from winning more than 3 of the bids, thereby ensuring that at there will be a minimum of 3 CRSP’s operating in the market. • Customers will be given the opportunity to “opt-out” of the market without penalty and procure their own service from another CRSP or revert back to Last Resort Service. However, those who elect to opt out of BES will be prohibited from returning during the term. This will allow for the fluidity the market needs to adequately develop.

  7. The Plan—Last Resort Service • LRS: The utilities’ structurally separated entity would be the Last Resort Supplier (LRS). As such, it would be responsible for providing Last Resort Service (LRS) to “new” default customers, those who opt out of the competitive bid process, and those whose suppliers leave the market. • A customer’s ability to remain on LRS would be limited to one year. Every year, the respective utility would hold an auction of those customers on LRS. • Need to “true-up” the cost of LRS to ensure that it does not become a barrier to the development of a vibrant competitive retail market.

  8. The Plan—MBIS MBIS: Competitive Retail Service Providers would be required to purchase MBIS for all generation supply, including BES, at tarrifed rates set by the DTE. • Over the time period of initial contracts (3 years), the DTE would be required to open a docket and conduct an unbundling procedure with respect to MBIS. • The DTE would then be required to issue a report together with recommendations to the Legislature on the future of MBIS.

  9. The Plan—Post BES • At the end of the initial term of BES (3 years), a new three-year term would begin for the customers remaining at a price proposed by the supplier and approved by the DTE. Again, customers would be free to opt out at any time without penalty.

  10. Options • The way we look at it we have two options: • First, we can rest on our laurels and do nothing, thereby virtually guaranteeing a return to the old vertically integrated system; or • Second, we can take bold steps tempered by a deliberative approach.

  11. Conclusion • Legislative timeline • Put out draft out around Valentine’s Day • Debate in the House early to mid-march. GO PATS!!!!!!

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