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Restructuring Roundtable: Merchant vs Rate-Base

Restructuring Roundtable: Merchant vs Rate-Base. presented by Dan Allegretti. The Basic Idea. Merchant = Gooood!!!! Rate Base = Baaaad!!!!. Benefits of Moving to Merchant Model. Three Main Benefits Competitive forces lead to more efficient operation

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Restructuring Roundtable: Merchant vs Rate-Base

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  1. Restructuring Roundtable: Merchant vs Rate-Base • presented by • Dan Allegretti

  2. The Basic Idea • Merchant = Gooood!!!! • Rate Base = Baaaad!!!!

  3. Benefits of Moving to Merchant Model Three Main Benefits • Competitive forces lead to more efficient operation • Risk of generation plant cost over-runs shifted from captive ratepayers to merchant owner shareholders • Provide more efficient & reliable power system Utility-owned power plant Merchant power plant

  4. More Efficient Operation • Improved Generator Performance. Since Wholesale Restructuring, plant availability in New England has increased by 8%, avoiding the construction of up to five 400 MW generating facilities. • Reduced Emission Rates. While electricity generation within New England increased 25% between 1998 and 2004, associated SO2 rates decreased by 56%, NOX by 57% and CO2 by 22%. • Consumer Savings. Consumers have saved between $6.5 and $7.6 billion between 1998 and 2005, based on projections of where prices would have trended in the absence of restructuring. Source: “A Review of Electricity Industry Restructuring in New England,” Polestar Communications and Strategic Analysis (for the New England Energy Alliance), September 2006.

  5. Less Ratepayer Risk Example: Duke Energy “U.S. power company Duke Energy on Thursday significantly boosted its estimated cost for building two proposed power plants, citing higher material expenses and a shortage of skilled labor. Chief Executive Jim Rogers said at a press luncheon that the proposed clean-coal power plant in Indiana may cost $2 billion, up from a prior estimate of about $1 billion. The cost for the proposed conventional coal plant in the Carolinas has been increased to $3 billion from $2 billion, Rogers said.” *Source: Reuters, November 16, 2006.

  6. Less Ratepayer Risk Example: Exelon • In 2003 Exelon Corp. turned over ownership of the newly re-powered Mystic and Fore River generating plants to its lenders. According to the Boston business Journal Exelon had acquired the plants from Sithe for a $543 million note. None of this money was recovered from captive ratepayers through stranded cost recovery charges.

  7. Efficient & Reliable System • Nearly 40% of installed generation capacity is now merchant • Competitive sector built almost all new generation since early 1990s • Competitive Power’s Fuel Diversity: • Coal – 36% • Natural Gas – 27% • Nuclear – 27% • Renewables – 5% • Other – 5%

  8. How Much More Do You Need To See???? • New England. $6.5 to 7.6 billion since restructuring. Polestar Study 2006. • New York. 14.7 to 17.7% savings for all customers. NYPSC Staff 2006. • PJM & NY Combined. $430 million to 1.3 billion/year. LECG 2006. • Eastern Interconnect. $15 billion for 1999-2003. Global Energy Decisions 2005. • Whole Nation. $34 billion over 7 years. Cambridge Energy Research Associates. • Economists agree benefits are real. 2006 Open Letter.

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