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BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY.

BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY. THE BOSLEY PLAN: COMPETITION, STABILITY, AND RELIABILITY.

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BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY.

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  1. BEYOND THE STANDARD OFFER- FULFILLING THE PROMISE OF 1997: COMPETITION, RELIABILITY AND STABILITY.

  2. THE BOSLEY PLAN: COMPETITION, STABILITY, AND RELIABILITY. • 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. • The plan would see the structural separation of the incumbent utilities’ retail and distribution functions. That is to say, the utilities would be mandated to structurally separate their wires function from their retail function. The newly created retail affiliate would be a competitive affiliate of the utility that would be required to provide last resort service (currently default) as well as MBIS at tarrifed rates to competitive suppliers (until DTE resolves unbundling). Additionally, the affiliated retail service supplier may also bid during the descending clock auction (see infra).

  3. THE BOSLEY 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 will be pooled together and put out to bid via an auction administered by the respective utility. • The bidding will be divided into several suppliers in each service territory chosen by descending clock auction. Moreover, there would be separate auctions for residential and small commercial customers. Contracts for BES would be for a 3 year fixed price. Each group would include approximately 250,000 residential customers randomly drawn from standard offer and default customers. • One competitive retail service provider would be prohibited from winning more than 3 three 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 at any time 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.

  4. THE BOSLEY PLAN: THE AUCTION

  5. THE BOSLEY PLAN: THE UTILITIES • As previously stated, there would be a structural separation of the utilities’ retail and distribution functions. The utility would file a plan for structural separation with the DTE. The structurally separated entity of the utility would be responsible for 1) LSR service (i.e., Default Service); 2) MBIS and 3) would be permitted to bid in the descending clock auction for its service territory. • LSR SERVICE: The utilities’ structurally separated entity would be the Last Resort Supplier (LSR). As such, it would be responsible for providing Last Resort Service (LSR) to “new” default customers, those who opt out of the competitive bid process, and those whose suppliers leave the market. • A customers ability to remain on LSR would be limited to one year. Every year, the respective utility would hold an auction of those customers on LSR. • Need to “true-up” the cost of LSR to ensure that it does not become a barrier to the development of a vibrant competitive retail market. • Policy Question: do we sunset LSR?

  6. THE BOSLEY PLAN: THE IIOU’s --MBIS: Competitive Retail Service Providers would be required to purchase MBIS for all generation supply including BES during the first term of BES at tarrifed rates set by the DTE. • Over the time period of initial contracts (3 years), the DTE would be required to conduct an unbundling procedure with respect to MBIS.

  7. THE BOSLEY PLAN: THE ADVANTAGES • CRSP’s have a statewide presence. • Customers who “opt-out” of the initial bid could go to another CRSP or on to LSR for up to 1 year. • There will be a new auction every year thereby providing CRSP’s with the ability to augment their customer base while minimizing the amount of capital needed to do so. • Clearing price provides for stability. • Accomplish the goals of 1997. • Consistent with out deliberative approach thus far.

  8. Post Basic Electric Service • At the end of the initial term of BES (3 years), a new three year term would begin for the customers remaining on BES 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.

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