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Beyond the Standard Offer Mass Market Development Policies Culled From Other Markets’ Experiences A Report to the Massachusetts Division of Energy Resources. Plexus Research, Inc. Eric P. Cody, Principal Researcher. Policy Goals Underlying DOER’s Project. Near Term:

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Beyond the Standard OfferMass Market Development Policies Culled From Other Markets’ ExperiencesA Report to theMassachusetts Division of Energy Resources

Plexus Research, Inc.

Eric P. Cody, Principal Researcher

policy goals underlying doer s project
Policy Goals Underlying DOER’s Project
  • Near Term:
    • Enable customers’ choice of retail supplier
    • Mitigate customers’ exposure to unwarranted price volatility
  • Long Term:
    • Sustain competitive options in the mass market
    • Enable the mass market to obtain the full benefits of retail competition

1

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UNITED

KINGDOM

COMPARISON MARKETS

Comparative Market Assessment

ALBERTA

MAINE

OREGON

MASSACHUSETTS

NEW YORK

PENNSYLVANIA

NEW JERSEY

OHIO

GEORGIA

(GAS)

TEXAS

AUSTRALIA

2

reality checks with retailers
‘Reality Checks’ withRetailers
  • Constellation New Energy
  • Direct Energy (Centrica)
  • Dominion Retail
  • Green Mountain Energy
  • Reliant Energy Retail Services
  • TXU Energy Services
  • WPS Energy Services

3

energy retailer s view
Energy Retailer’s View

Structure of Default Service

Maintain Cash Flow

Minimize Overheads

Market Rules

Size of Available Market

Market Entry Decision

Sustainable Operations

Protect Margins

Opportun-ities to Achieve Scale

Manage Price Risk

Wholesale Energy Cost

Acquire Customers

Retain Customers

Regulated

Retail Price

4

window into the future uk residential customer experience
Window into the Future:UK Residential Customer Experience
  • Satisfaction is high – 90% favorable
  • Price is the primary factor influencing switching
  • Price discounts are tied to method of payment
  • Dual fuel offers predominate – 80% of those who have switched buy electricity & gas from same source
  • Customer awareness of alternatives has increased
  • Non-price offers include loyalty points, bundled offers, green products and service differentiators

5

challenges specific to mass market entry
Challenges Specific to “Mass Market” Entry
  • Cost to acquire customer high vs. margins
  • Expensive IT back office requirements
  • Minimum retailer scale ≈ 500K-1M customers
  • Projected customer savings modest
  • Pricing of regulated supply option can impede
  • Incumbent utility seen as competitor or barrier

6

residential customers served competitively 2003
% Residential Customers Served Competitively (2003)

100%

Direct

Customer

Assignment

Full Retail

Separation

Competitive

Generation

Supply

Regulated

Portfolio

Options

8

findings
Findings
  • UK market alone has become ‘reasonably competitive’
  • The most competitive electricity markets adopted Full Retail Transfer or a close derivative
  • Several of most competitive markets have unified regulatory authority over wholesale / retail
  • Early level of competitiveness may be proportional to market size
  • Sensible & consistent market practices have a positive effect on retailer entry

10

massachusetts must overcome several inherent disadvantages
Massachusetts Must Overcome Several Inherent Disadvantages
  • Market size
  • Customer usage patterns
  • Bifurcated regulatory authority
  • Prescriptive regulation of retailers

11

foundation principles
Foundation Principles
  • Default service pricing must reflect market cost
  • Artificially increasing regulated supply price to create “headroom” does not create sustainable competition
  • Large-scale wholesale bidding works against retail competition
  • Preserving the largest possible market size is critical
  • Overly burdensome administrative requirements deter retailers from entering
  • Opportunities for retailers to build brand awareness are essential

12

key policy directions
Key Policy Directions
  • RAPID SCALE ACHIEVEMENT: Adopt customer auction, direct assignment, or retail separation to move Standard Offer customers to non-regulated supply
  • RETAIL PRICE COMPARABILITY: Include components that accurately reflect the cost of retail services — such as billing and customer care — in default service pricing
  • MAINTAIN MARKET SIZE: Maintain a single, statewide model of retail choice that preserves effective market size
  • EXPAND MARKET SIZE: Simplify, standardize and regionalize business practices for customer enrollment & switching and other key processes to create a seamless New England retail market

13

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PlexusResearchInc.

629 Massachusetts Ave.Boxborough, MA 01719978-263-6080

[email protected]

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