# Presentation: 324701

## Retail Competition: To Be or Not To Be

**Ken Malloy**
**Center for the Advancement of **
**Energy Markets**

## Overview 

**Introduce CAEM **
**Energy Restructuring 2001:**
**Should we continue to restructure? **
**Yes, But we have screwed it up royally**
**Where do we go from here?**

- Center for the Advancement of Energy Markets

## Center for the Advancement of Energy Markets

- 	Discovering consumer, business, and environmental advantage in energy markets transformed by technology and competition

- Center for the Advancement of Energy Markets

## Center for the Advancement of Energy Markets

***CAEM***
- Three  Years Ago
- Retail was destined for failure
- Something Missing
- Think Tank on Energy Restructuring
- Character
- Independent
- Market-Oriented
- Non-Profit-501(c)(3)
- Change Agency, Think Tank
- Not a lobbying group, trade association, or consulting firm

- Mission
- Define
- Discuss
- Build Consensus
- Advance
- Canadian Affiliate
- October 2001

- Center for the Advancement of Energy Markets

## Board of Directors

- AES
- Automated Energy
- Dynegy
- Deloitte & Touche
- Exelon
- Green Mountain
- Haddington Ventures
- KeySpan
- Madison Gas & Electric
- Navigant
- New Power
- Primen
- Williams

- Larry Bickle, CEO
- Cody Graves, CEO
- Dennis Kelly, CEO
- Gene Lockhart, CEO
- Ernie Moniz, MIT
- Bob Rowe, ex Pres. NARUC
- Joel Singer, CEO
- Branko Terzic

- Center for the Advancement of Energy Markets

## Contribution to Intellectual Capital 

- Retail Energy Deregulation Index (RED Index)
- DISCO of the Future
- Lessons Learned from Natural Gas Restructuring
- Distributed Energy Task Force
- Grid Enhancement Project
- Canadian Energy Restructuring Forum
- Pricing and Cost Allocation Task Force

- Center for the Advancement of Energy Markets

## Restructure What: Competitive Network Policy

*Traditional *
- Command-and-Control
- Monopoly Utilities
- Bundled Services
- Cost-Plus Pricing
- Silo-Based Products
- Fragmented
- Parochial
- State Focused

*Emerging *
- Market Based
- Customer Choice
- Unbundling/Access
- Performance Based
- Convergence
- Consolidated
- Regional/Global
- Federal Focused

- Center for the Advancement of Energy Markets

## Been There, Done That Case Study-Federal Gas Access

- Center for the Advancement of Energy Markets

## Illustration of Access Path:Increase in 3rd Party Access on Natural Gas Pipelines

- 0

- 10

- 20

- 30

- 40

- 50

- 60

- 70

- 80

- 90

- 100

- 1978

- 1980

- 1982

- 1984

- 1986

- 1988

- 1990

- 1992

- 1994

- 1996

**% of 3rd party sales**

- order 380
- 1983

- order 436
- 1985

- order 500
- 1988

- order 497
- 1986

- EPACT
- 1992

- decontrol legislation
- 1989

- order 636
- 1992

- NGPA
- 1978

- Capacity
- PBR
- Affiliates
- 2001

- Center for the Advancement of Energy Markets

## Natural Gas Prices Gas Competition Benefited Residentials

- Natural Gas Prices Gas Competition Benefited Residentials

***Residential Price***

***Wellhead Price***

***Industrial Price***

***% Reduction Since 1983****** ******Residential - 31% ***
***Industrial - 44% ***
***Producer - 20%***

- 1995$/mcf

- Source: Energy Information Administration

**New CAEM Study:**
***$6000 per Household***

- Center for the Advancement of Energy Markets

## Natural Gas Consumption  Natural Gas was disfavored fuel in 1970s energy policy

- Source: Energy Information Administration

- Access Policy

- Tcf

- EIA Projection

**Environment **
**Energy Security**
**Economic Gain**

- Center for the Advancement of Energy Markets

## Industry Deregulation and Price

- % real price reductions after

- Source: Crandall and Ellig (1997)

- Center for the Advancement of Energy Markets

## 2001: Despair and Disarray Energy Restructuring is a Disaster 

- UFO Abductees better organized
- Congressman Joe Barton
- California is the poster child for energy restructuring.
- California, Enron, and prices have made issue of competition in energy front page news
- No Coherent Model so a thousand flowers bloom
- Raises significant question of whether competitive model will work for mass customers and whether adequate supplies will be developed

- Center for the Advancement of Energy Markets

## Why are we having problems?Retail Access will be more complex

- FEDERAL			STATE
- One Customer Class		 Multiple Classes
-  Less Political 			 More Political
-  One Energy Form 		 Multitasking Reform
-  Limited Issues 			 Multidimensional
-  FERC 				 64 PST’s
-  25ish Companies 		 250 to 4000 corps
-  FERC Funded 			 States Underfunded
-  Control 				 Coordination
-  15 year transition		 Even longer transition

- Center for the Advancement of Energy Markets

## How do we measure progress?

- Indices—Simplify Complex Situations
- Thermometer of 104
- DOW over 11,000 or Price to Earnings Ration of 25
- CPI at 3.5%
- Federal Reserve Price Cuts of .5%
- Hurricane Mitch was a Category 5 on Saffir-Simpson Hurricane Intensity Scale.
- RED=Retail Energy Deregulation
- 22 Key Issues that Determine the Quality of Access
- Scale from 0 to 100—Negative Numbers Possible
- Survey of State Commissions
- Updated 2x a year
- Comprehensive New Methodology
- Coverage extended to Canada and Australia and to Gas this year
- Introduce Nat Treadway, Project Director of the RED Index

- Center for the Advancement of Energy Markets

## 22 Key Attributes in 5 Clusters

-  **A.  Framework Cluster**
- plan, eligible customers, switching customers, competitive safeguards, standardization, billing competition, metering competition
**B.  Generation Cluster**
- market structure, wholesale market, stranded cost standard, stranded cost implementation
**C.  Consumer Cluster**
- information, education, default provider

**D.  Distribution Cluster**
- price risk, default rates, performance based regulation, network pricing, and distributed resources
**E.  Commission Cluster**
- regulatory convergence, reengineering, budget

- Center for the Advancement of Energy Markets

## Texas tied for firstEven before debacle, California barely in top 20

| 
Province, State or Territory | 
2002 Score | 
2002 Rank |
| --- | --- | --- |
| Texas | 68 | 1 |
| Pennsylvania | 68 | 2 |
| Maine | 65 | 3 |
| New York | 56 | 4 |
| Maryland | 50 | 5 |
| DC | 49 | 6 |
| New Jersey | 49 | 7 |
| Victoria, Australia  | 45 | 8 |
| Alberta, Canada | 45 | 8 |
| Michigan | 45 | 8 |
| California | 5 | 28 |

- Center for the Advancement of Energy Markets

## Texas vs. Pennsylvania Path

- Center for the Advancement of Energy Markets

## Texas: We’re Number 1!

| Attribute | 2002 Characterization | Highest Possible Score | 2002 Score |
| --- | --- | --- | --- |
| 1. Plan | Detail | 5 | 5 |
| 2. % Eligible | 70% | 5 | 5 |
| 3. % Load Switched | 2% | 5 | .5 |
| 4. Safeguards | Corporate | 10 | 7 |
| 5. UBP | Consensus  | 10 | 10 |
| 6. Billing | Consolidated | 3 | 3 |
| 7. Metering | Delayed | 2 | 1 |
| 8. Generation | Incentives | 10 | 7 |
| 9. Wholesale | Bilateral  | 5 | 5 |
| 10. SC Calculation | Not an Issue | 3 | 3 |
| 11. SC Implementation | Not an Issue | 3 | 3 |
| 12. Customer Information | Excellent | 2 | 2 |
| 13. Consumer Education | Understanding | 2 | 2 |
| 14. Default Service | Experiment | 15 | 4.5 |
| 15. Price Risk | Fixed | 4 | 2 |
| 16. Rates | Rationalization | 4 | 2 |
| 17. PBR | No Action | 2 | 0 |
| 18. Network Pricing | Cost of Service  | 2 | 0 |
| 19. DG Interconnection | Aggressive | 5 | 5 |
| 20. Convergence | No Action | 1 | 0 |
| 21. Reengineering | Some | 1 | .5 |
| 22. Budget | Level | 1 | 0 |
| RED Index Score
US Rank
North American Rank |  |  | 68 |
|  |  |  | 1 |
|  |  |  | 1 |

- But it is a pretty stupid class.

- Center for the Advancement of Energy Markets

## Progress on Accomplishing Attributes

- Center for the Advancement of Energy Markets

##  US National Red Index Score

- Center for the Advancement of Energy Markets

## Success of RED Index

- PA Governor used it in State of State Address
- NY PSC and Texas issued Press Releases
- Vermont DPS uses it as strawman
- Alabama Attorney General
- World Bank: “most sophisticated scorecard for measuring power sector reform.”
- Full Page in USA Today
- Provided free to 1600 public sector organizations

- Center for the Advancement of Energy Markets

## Homework Assignment

- Xenergy’s Retail Energy Markets Report and Retail Energy Foresight won the RED Letters Award Last Year
- FTC Report for Congressman Tauzin on Retail Competition will win this year’s RED Letter Award
- Skipping Stone’s Report on the Texas Market

- Center for the Advancement of Energy Markets

## Action: Process

***Movement is in disarray***
- Who is the acknowledged leader who inspires and challenges?
- Where is the battle plan for winning this war?
- Where can we go to meet fellow travelers to gain comfort from the wearying battle?
- Where do I go for training in the new paradigm?
- Where is an organization of the broad and diverse elements of the movement ?
***Einstein’s Definition of Insanity***
- Doing the same thing over and over expecting a different result.

- Center for the Advancement of Energy Markets

## Action: Strategy

- Einstein writes to Roosevelt in 1939: Germans building an atomic bomb
- Six years later US ends World War II by dropping Little Boy and Fat Man on Japan.
- Manhattan Project represented “the greatest single achievement of organized human effort in history.”
- Vision, courage, leadership, and commitment in the face of gargantuan obstacles.
- Where is anything approaching that in the energy restructuring movement.
- We need a Manhattan Project for energy restructuring!

- Center for the Advancement of Energy Markets

## Action: Organization and Intellectual Capital

- Organization and leadership is not evident in the industry today
- We recently established the *Friends of Restructuring and the Leadership Council on Energy Competition* to begin to meet this challenge
- Intellectual Capital—unbiased understanding of problems and solutions—is in short supply
- We recently established the *IDEAS Foundation* to begin to meet this need
- Integrated Development of Essential Assets and Services

- Center for the Advancement of Energy Markets