National Perspectives on Retail Energy Market Development

1. National Perspectives on Retail Energy Market Development Craig G. Goodman President National Energy Marketers Association 202-333-3288 cgoodman@energymarketers.com www.energymarketers.com State of Connecticut Senate Energy & Technology Committee Informational Hearing February 21, 2007

3. National Energy Marketers AssociationOverview – 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

4. National Energy Marketers AssociationOverview – 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.

5. 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)

6. 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.

7. Documented Benefits of Competition • 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.“** *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.

8. Problems to Solve • Depression EraUtility 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 Servethe Public Interestchanged 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

9. Energy and Technology Competition • 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.

10. Energy and Technology Competition • 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. Discount airlines such as Southwest and Jet blue had not yet evolved

11. 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

12. 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

13. Technology is Converging Broadband over Power Lines (BPL)-generation and transmission of electricity commingled with information/content (inductively coupled) over electrical power South Africa: Portugal Australia, TasmaniaCanada, Quebec Asia Pacific and Oceania regions with many successful trials in Australia, China, Indonesia, Hong Kong, Malaysia, Philippines and Taiwan. .Middle East and Africa. a long term trial running in Russia. Sources indicate 300,000 Chinese have access BPL at speeds of 200 megabytes/second

14. Technology is Converging Broadband over Power Lines (BPL) – One kilowatt can transmit the entire film library of Hollywood California around the U.S., 60 times every second without any reduction in reliability United States: Virginia: In October 2005 the city of Manassas began the first wide-scale deployment of BPL service in the nation, offering 10 Megabits service for under $30 USD per month to its 35,000 city residents, using MainNet BPL technology. California approved a plan on April 27, 2006 allowing high-speed internet providers to begin testing delivery of online access using power lines.

15. NYPSCStatement of Policy on BPL principles: • The deployment of economically viable BPL technology by electric companies • The deployment of BPL technology to provide communication services to the public. • The deployment of BPL technology to provide communications services to the public may not be implemented by regulated electric utilities. • Circumstances may arise when work related to the BPL system must be performed by utility employees or utility approved contractors. • Utilities remain responsible for ensuring safe and adequate electric service. • The BPL provider and the utility should develop procedures for sharing and protecting customer and system information. • Pole attachment tariffs will continue to apply to attachments to utility poles by BPL providers. • BPL providers should pay a fee for the ability to access the electric utility system.

16. Low Cost/High Yield Options • Avoid Duplication of Utility Charges: • Transparent Utility Bills (unbundled rates allows competition) • Full and Fair Disclosure of Costs and Risks • Proper Consumer Shopping Credits (full costs not marginal costs) • Purchase of receivables, esp. in conjunction with Marketer Referral Programs (NY – all except Keyspan; NJ – PSEG, South Jersey Gas, New Jersey Natural Gas; Ohio – DEO, Columbia; PA – PECO, Columbia; MI – MichCon and Consumers; IN – NIPSCO) • Customer lists and usage data

17. Low Cost/High Yield Options • Subsidies should not distort commodity prices--Compare FirstEnergy (OH) (25 year deferral) with BGE (MD) competitively neutral non-bypassable charge • Migration Incentives –Higher returns tied to migration–NY-ConEd, O&R, Central Hudson • Public Education-Compare Delaware to Maryland to New York (optional repayment with interest- Consumers are smart enough to shop– New York—1.3 million have shopped)

18. Low Cost/High Yield Options • Data exchange standardization • Fair allocation of utility resources– (Assets follow the customer) • Customer choice of bill provider

19. 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)

20. Market-Based Pricing • Electric • Residential and small commercial – monthly-adjusted, market-based pricing • Large commercial and industrial – hourly pricing • Gas – monthly adjusted, market-based pricing

21. Market-Based Pricing • NJBPU – expanded class of customers on hourly PJM real time pricing to all customers above 1,000 kw effective June 1, 2007* • NYPSC – required utilities to implement hourly, real-time pricing for their large customers** • ConEd/O&R (5/1/06) mandatory time of use customers w/peak demands greater than 1.5 and 1 MW, respectively • National Grid (9/1/06) SC3 customers at 500kw and above • NYSEG/RG&E (1/1/07) time of use customers at 1000 kw or above, later filing to convert remainder of mandatory time of use customers • Central Hudson (2005) customers w/peak demands greater than 1 MW *NJBPU Docket EO05040317, Order, December 8, 2005, pages 15-16. **NYPSC Case 03-E-0641, Order, April 24, 2006.

22. Market-Based Pricing U.S. DOErecommended that state Commissions consider adopting real time pricing as the default service for large customers • “Default service RTP tariffs that index hourly prices to day-ahead markets support demand response and retail market development by giving customers more notice and certainty of the financial consequences of their response.”* *U.S. Department of Energy, Benefits of Demand Response and Recommendations, February 2006, at 52.

23. Market-Based Pricing NYPSC reasoned, “As price signals for highest peak hours are transmitted to customers, those large customers can be expected to respond . . . . Since large customers use amounts of electricity disproportionate to their number, that response could have a significant impact on peak period prices. More accurate price signals are also known to promote economic efficiency in general. Moreover, as demand-side load reduction and load control measures are implemented in response to these price signals, the potential for the exercise of wholesale market power is mitigated. Gaining and taking advantage of market power is more difficult, particularly during peak periods, when efforts to increase the price of supply meet resistance in the form of reductions to demand.”* *NYPSC Case 03-E-0641, Order, April 24, 2006, pages 14-15.