Transcript Document

Why Competitive Energy
Markets Work – Lessons
Learned in Competitive
Energy Markets Throughout
the U.S.
Craig G. Goodman
President
Ohio Energy Management
& Restructuring Conference
National Energy Marketers Association
202-333-3288
[email protected]
www.energymarketers.com
February 27, 2008
National Energy Marketers Association
Overview – Who Is NEM?
 Non-profit trade association representing wholesale and retail
marketers of natural gas, electricity, as well as energy and financial
related products, services, information and advanced technologies
throughout the United States, Canada and the European Union.
 Independent power producers, suppliers of distributed generation
ABCs-Aggregators, Energy brokers, Consultants--power traders,
electronic trading exchanges and price reporting services
 Advanced metering, demand side management and load management
firms Billing, back office, customer service and related information
technology providers
National Energy Marketers Association
Overview – Who Is NEM?
Energy consumers
Inventors, patent holders, systems integrators, and
developers of solar thin film building integrated
photovoltaic, fuel cells, and advanced BPL, PLC
technologies as well as Smart Electricity.TM
Committed to helping implement a consumer-focused,
value-driven transition to a reliable, price and technology
competitive market for energy and telecom related
products, services, information and technologies.
Potential Benefits of
Competition
 Energy choice programs provide consumers with a myriad of
benefits:
 Better price and service options
 Access to innovative new offerings of products, services, information and
technology
 Lower energy prices lower the cost of doing business permitting
companies to better compete
 Lower energy prices help states to attract new businesses, increase job
opportunities and increase state tax revenues
 Consumers do not bear the risk of generation investments as captive
utility customers
 Consumer Protection-The ability to do business when you want, with
whom you want, and then to buy what you want is one of the greatest
consumer protections that government can offer.
 Savings from competition in the marketplace are cumulative like compound
interest (even if prices are otherwise rising)
Documented Benefits of
Competition
Texas ----“the competitive market has provided
customers with prices that were significantly below the
estimated rates that would have been in effect in a
regulated environment. Even customers who did not
switch to a competitive rate have benefited from the
introduction of retail competition. During each of the
years 2002 through 2005, the PTB [Price to Beat] was
lower than the estimated regulated rates in both service
areas.”*
New York---“The total real (i.e., inflation-adjusted)
electric price for a typical residential retail customer in
New York, including supply and delivery charges, has
dropped by an average of approximately 16% between
1996 and 2004.”**
*Commission’s Legislative Report on Electricity Pricing in Competitive Retail Markets in Texas, Project 32198
**Staff Report on the State of Competitive Energy Markets: Progress To Date and Future Opportunities, March 2, 2006.
Documented Benefits of
Competition
 EIA Study – In the surveyed states of Ohio, Maryland,
New York and Pennsylvania, “customers purchasing
natural gas from marketers paid less than LDC
customers in most months during 2002 to 2005.”*
 CERA Study---“[t]he majority of U.S. consumers have
paid less for electricity since the onset of power system
deregulation in 1997, achieving total savings of about $34
billion compared with the costs if traditional regulation
had continued.”**
 Joskow Study------for the period of 1996 to 2004, "real
residential prices fell more in states that implemented
retail competition programs than in those that did
not.“***
*EIA, Natural Gas Marketer Prices and Sales to Residential and Commercial Customers: 2002-2005 (June 2007).
**CERA, Press Release, “Power Deregulation Saved $34 Billion, Benefited Majority U.S. Consumers Over Past 7 Years:
CERA Study,” October 19, 2005
***Markets for Power in the United States: An Interim Assessment, The Energy Journal, 2006.
Fuel Input Prices Rising
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Coal
($/ton)
27.01
26.45
26.16
25.64
24.72
24.28
24.68
25.52
26.00
27.42
31.20
34.09
Petroleum
($/barrel)
16.10
18.98
17.18
12.71
14.81
26.30
23.20
20.77
26.78
26.56
39.65
37.66
Natural Gas
(cents/106 Btu)
198
264
276
238
257
430
449
356
539
596
821
694
Source: EIA, Electric Power Annual 2006, Table 4.5, Receipts, Average Cost and
Quality of Fossil Fuels for the Electric Power Industry, 1995 through 2006
Average Retail Prices
of Electricity to Consumers
– Residential, Commercial
and Industrial
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total Electric
Industry
8.40
8.36
8.43
8.26
8.16
8.24
8.58
8.44
8.72
8.95
9.45
10.40
Full Service
Providers
8.40
8.36
8.43
8.26
8.16
8.21
8.55
8.40
8.68
8.91
9.40
10.36
Energy Only
Providers
8.36
8.43
8.26
8.16
12.07
5.34
5.43
5.43
5.50
6.54
8.23
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Delivery Only
Service
6.74
6.57
6.11
6.00
5.72
6.19
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total Electric Full Service Energy Only Delivery Only
Industry
Providers
Providers
Service
7.69
7.69
7.64
7.64
7.64
7.59
7.59
7.59
7.41
7.41
7.41
7.26
7.26
7.26
7.43
7.36
8.65
7.92
7.84
6.22
3.44
7.89
7.77
5.86
3.75
8.03
7.89
6.02
3.80
8.17
8.02
6.02
3.59
8.67
8.46
7.15
3.45
9.46
9.18
8.36
3.63
Total Electric Full Service Energy OnlyDelivery Only
Industry
Providers
Providers
Service
4.66
4.66
4.60
4.60
4.60
4.53
4.53
4.53
4.48
4.48
4.48
4.43
4.43
4.43
4.64
4.57
6.24
5.05
5.01
4.69
1.38
4.88
4.78
4.53
2.08
5.11
5.01
4.47
1.80
5.25
5.14
4.60
1.90
5.73
5.61
5.31
1.77
6.16
6.00
6.25
1.96
Source: EIA, Electric Power Annual 2006, Table 7.4
Choice Matters, Politically and
Economically
Choice Matters, Globally and
Locally
Depression Era Utility Regulations- the current utility
regulatory model was designed during the great depression. Is One Choice all
We Need? (Are two choices bad and ten choices terrible?)
The Utility’s Obligation to Serve the Public
Interest changed between early 20th century and
early 21st century- (new competitive services, information and
technology markets, global competition for jobs and economic growth and better
standards of living)
How can we best serve the Public Interest in a
Digital Global Economy
Choice Matters, Politically and
Economically
Choice Matters, Globally and
Locally
 Since the end of the Cold War, countries around the globe
have increasingly followed the lead of the United States in
adopting market-based solutions to laws, regulations and
public policies.
 Western-style economies in the EU, Scandinavia, and
Australia, have restructured their energy sectors to better
allocate resources and encourage economic growth.
 Even historical command and control economies of the
former Soviet Union and the Asia Pacific are also relying
more heavily on market-based solutions.
Choice Matters, Politically and
Economically
Choice Matters, Globally and
Locally
Historically, the United States has relied on its abundant
resource base, technology leadership and market-based
policies to drive economic growth.
However, global competitors are upgrading energy and
telecom infrastructures to better compete in the digital
economy of the 21st Century.
Deregulation of the U.S. telecom and airline industries
have yielded significant price and technology dividends to the
consumer and the economy.
Long distance telephone rates were $4.50/minute at the
dawn of telecom deregulation.
Restructuring Dividends
Restructuring Dividend Reinvestment
Incentives- (Resources reallocated from
competitive markets to reliability
investments rewarded with higher rates of
return )
Reliability is increased- utility retains core
competency (more reliable delivery) –More
Reliable Supplies market supplies competitive
services (Contracts stronger than Compacts
Legal and regulatory risks reduced)
Technology is the Enabler
Increased Supplies & Cleaner Fuels(clean coal, smaller safer nuclear, landfill methane, bio-fuels,
solar, fuel cells, ocean thermal, DG, efficiency technologies)
Reduced Demand (time of day rates, smart
meters, net metering, DG units reduce utility demand)
Greater Reliability (digital power quality) &
Homeland Security (critical infrastructure
protection)
Economic Growth & Job Creation
Technology is the Enabler
Enhanced & Advanced Metering – consumer monitoring
and control of energy usage-remotely aggregated and
dispatchable
Solar Energy - innovative power generation technology,
enables the external surfaces of a building, such as windows
and other building materials, to function as solar energy
systems.
Hydrogen Fuel Cells – clean, no emissions power
Broadband over Power Lines (BPL) – generation and
transmission of electricity commingled with
information/content (inductively coupled) over electrical
power
Wholesale Electric
Competition
FERC – “National policy for many years has been,
and continues to be, to foster competition in wholesale
power markets. As the third major federal law
enacted in the last 30 years to embrace wholesale
competition, the Energy Policy Act of 2005 (EPAct
2005) strengthened the legal framework for continuing
wholesale competition as federal policy for this
country.”
FERC ANOPR, Wholesale Competition in Regions with
Organized Electric Markets, Docket Nos. RM07-19 and AD07-7
(June 22, 2007)
Successful Retail Energy
Markets
Texas – utility default pricing mechanism floats with
commodity price
Texas electric migration rates*:
Residential – 33.9%
C&I (secondary voltage level) – 39.4%
C&I (primary and transmission voltage level –
61%
Georgia – Atlanta Gas Light full exit from merchant
function (separate services for low income and credit
challenged customers)
*Public Utility Commission of Texas, Report to the 80
th
Texas Legislature, Scope of Competition in
Successful Retail Energy
Markets
New York – PSC-endorsed retail best practices
implemented by utilities
New York electric migration rates*:
Residential – 12.2% (691,417 accounts)
Non-Residential (SM & ST LGT) – 22.9%
Non-Residential (LG TOU) – 47.8%
New York natural gas migration rates:
Residential – 11.3% (481,139 accounts)
Non-Residential (Small C&I) – 22%
Non-Residential (LG Transport) – 46.5%
Over 1 million customers have chosen a competitive
supplier
Successful Retail Energy
Markets
Ohio – DEO phased exit from gas merchant
function (Vectren and Columbia Gas to follow suit)
Ohio gas migration rates*:
DEO – Residential (66.75%) C&I (68.5%)
Columbia Gas – Residential (43.2%) C&I
(45.6%)
Vectren – Residential (34.8%) C&I (22%)
*PUCO, Natural Gas Customer Choice Program, Customer Enrollment Levels, September 2007
Successful Retail Energy
Markets
Ohio electric customers (residential, commercial
and industrial) can and should receive the same
benefits of competition, already being realized by
natural gas consumers in the State
Ohio market region is competitive – 300 market
participants clear more than $2.4 billion in energy
transactions each month
Market-Based Pricing
Extended rate caps distort commodity prices – create
boom/bust cycles, cannot sustain retail market
development
Electric
Residential and small commercial – monthlyadjusted, market-based pricing
Large commercial and industrial – hourly
pricing
Gas – monthly adjusted, market-based pricing
Low Cost/High Yield
Options
Avoid Duplication of Utility Charges:
 Transparent Utility Bills-unbundled rates allow
competition/all generation costs fully bypassable
 Full and Fair Disclosure of Costs and Risks
 Proper Consumer Shopping Credits-full embedded
costs not marginal costs
 Purchase of receivables, esp. in conjunction with
Marketer Referral Programs (NY – all utilities; NJ –
PSEG, South Jersey Gas, New Jersey Natural Gas; Ohio – DEO,
Columbia; PA – PECO, Columbia; MI – MichCon and
Consumers; IN – NIPSCO, IL-electric legislation)
Low Cost/High Yield
Options
Migration Incentives –Higher returns tied to migration
Consumer Education
Data exchange standardization
Fair allocation of utility resources – (Assets follow the
customer)
Customer choice of bill provider
Customer lists and usage data