Lessons Learned: Restructuring U.S. Energy and Telecommunications Markets

1. Lessons Learned: Restructuring U.S. Energy and Telecommunications Markets Institute of Public Utilities Evaluating Dislocations in the Restructured Energy Marketplace October 29, 2001 Williamsburg, Virginia Craig G. Goodman President 202-333-3288 cgoodman@energymarketers.com www.energymarketers.com

3. National Energy Marketers AssociationOverview • Who is NEM? • Marketers of Gas and Electricity • Marketers of Energy-Related Products, • Marketers of Energy-Related Services, • Marketers of Energy-Related Information, and • Marketers of Energy-Related Technologies • What Does NEMDo? • State and Federal Regulatory Commissions, Legislators • Consumer Representatives and Utilities • Fair and meaningful ways to implement competitive restructuring of markets for natural gas and electricity. s,

4. National Energy Marketers AssociationOverview • Who is NEM? • Small Regional Marketers • Large Traditional International Wholesale and Retail Energy Suppliers (as well as wind and solar power) • Billing and Advanced Metering Firms • Internet Energy Providers • Energy-Related Software Developers • Risk Managers • Energy Brokerage Firms • Information Technology Providers • Suppliers of Distributed Generation

5. Restructuring Lessons • “8 Lessons From the Telecom Mess” - Steve Rosenbush & Peter Elstrom, Newsweek, August 13, 2001 • Market Structure Maladies • Competitors Beware • Faster Connections • Access to Capacity • Regulatory Uncertainty • Merger Review • New Products and Services are Key to Attracting Consumers • Legacy Systems and Technologies

6. Market Structure Maladies Unless Big Changes are Made, Most Consumers Will Not See the Benefits of Competition in Local Phone/Retail Energy Service Telecom • “Eliminate subsidies for all but the truly needy, and let the Bells raise basic phone rates. That will encourage competitors to enter the market, bringing prices back down while improving phone service.” Energy • Fully unbundle utilities rates and give consumers shopping credits equal to the utilities fully embedded costs • Eliminate cross-subsidies between monopoly and competitive services • Default service pricing must encompass the full energy supply and commercial costs of serving retail load

7. Competitors Beware The Bell/Energy Utilities are More Effective at Stomping Out Local Competition Than Anyone Expected Telecom • “Give regulators the tools they need to force the Bells to open their markets to competition.” Energy • State Action Defense • Codes of Conduct • Provider of Last Resort • Fully Unbundle Rates Using Embedded Costs

8. Faster Connections The Rollout of Broadband Net Connections/Advanced Metering, Distributed Generation and Billing is Going to be Slow, Costly and Incomplete Telecom • “Take the money saved by eliminating residential phone subsidies to pay for a broadband rollout.” Energy • Availability of advanced metering and other competitive products, services, will better coordinate supply and demand • Tax incentives and regulatory reviews for “qualified energy restructuring investments”

9. Access to Capacity The Wireless/Energy Industry is Being Handicapped by the Shortage of Spectrum/Capacity Telecom • “Slaughter the sacred cows. Take spectrum away from the Defense Dept., television broadcasters, and the satellite industry.” • Collect back-end royalties vs. front-end auctions Energy • Open and non-discriminatory access to pipes and wires • Uniform, standardized interconnection rules, contracts and approval processes • Performance-based rates for infrastructure upgrades

10. Regulatory Uncertainty Given the Chance, Telecom/Energy Utilities Will Litigate Endlessly Telecom • “Streamline decisionmaking by regulators and courts, eliminating delays that have thwarted the Telecom Act.” Energy • “Consensus” building collaboratives don’t necessarily yield optimal solution • FERC Region-wide RTO initiative-excellent start • Prohibit regulatory return of and on attorney fees • Allow litigation via email and phone conferences

11. Merger Review Regulators are Reviewing Mergers Using Old-Fashioned Criteria Telecom • “Regulators shouldn't worry about whether a merged company will dominate one niche, but instead consider its share of the total telecom market.” Energy • How will merger benefit consumers, i.e. merger savings passed on in larger consumer shopping credits • Market power can be mitigated with state action disclaimers

12. New Products and Services are Key to Attracting Consumers Brand Names and "One Stop Shopping" are Marketing Myths Telecom • “If companies want to charge premium prices, they must develop premium products.” Energy • For competitive suppliers to flourish they must be able to offer all manner of value-added competitive products, services, information and technologies, rebundled into unique offerings tailored to consumer needs • Utilities exit the merchant function (all competitive functions) • Fully unbundled rates/Properly-structured shopping credits

13. Legacy Systems and Technologies Open Internet Standards Really do Encourage Innovation and Lower Prices Telecom • “Telecom-equipment makers and carriers must accelerate the deployment of new technologies based on Internet protocols and other open standards.” Energy • Internet-based data exchange using standardized information protocols and Uniform Business Rules • Advanced metering, distributed generation and other technologies

14. Lessons Learned “Study the past, if you would divine the future” Confucius “Men make history, and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better.” Harry S. Truman