# Presentation: 298151

## 
2001 NEMS/AEO Conference
Jack Cashin, Alliance of Energy Suppliers
March 27, 2001

- 2001 NEMS/AEO Conference
- Jack Cashin, Alliance of Energy Suppliers
- March 27, 2001

*Status of Wholesale U.S. Power Markets *

## 2001 A Supply Market Odyssey

- Status of Strategies
- Status of State Restructuring
- Status of Markets
- Status of Federal Restructuring

## Markets & Strategies and Restructuring’s Influence

- Partial Deregulation
-  Retail access and consumers
- Hodgepodge of state and regional structured markets
-  Volatility
- Strategic response of market participants

## Companies and Structural Changes

*Vertical disaggregation*
- External
- Divestiture
- Spin-offs
- Outsourcing
- Internal
- Business units
- Unbundling (vsfull-requirements)

*Horizontal aggregation*
- External
- M&A activity
- Business alliances
- Internal
- Functionalization

- FEWER COMPANIES

- MORE COMPANIES

## Energy Value Chain

- Natural gas
- Exploration & production
- Gathering & processing
- Transmission and storage
- Distribution
- Retail services

- Electricity
- Fuel Sourcing
- Generation
- Regulated
- Unregulated
- Transmission
- Distribution
- Retail
- Regulated
- Unregulated

## Slide 6

## Slide 7

## Slide 8

## Slide 9

## 1999 Power Marketer Sales Statistics

*1999 Power Marketer Sales Statistics*

- 		Million	MWH	  	Share
- Enron Power	388.3	14.6%
- Aquila Energy	236.5	8.9%
- PG&E Energy 	225.1	8.5%
- Southern Co. Energy	220.1	8.3%
- Avista Energy	135	5.1%
- Duke Energy	120.8	4.6%
- Reliant	112.2	4.2
- Citizens Power	92.3	3.5%

- 		Million	MWH	  	Share
- Williams	91	3.4%
- Statoil Energy	75.6	2.9%
- Dynegy PM	69.8	2.6%
- Constellation PS	69.8	2.6%
- El Paso PS	67.7	2.6%
- Koch ET	56.8	2.1%
- Total 	1961	73.9%
- Total Marketer Sates     	2652

## Power MarketerTotal Annual Wholesale Sales

- 1999:2.6 billion MWh 	(projected)
- 1998:2.3 billion MWh
- 1997:1.2 billion MWh
- 1996:230 million MWh
- 1995:27 million MWh

## Strategic Landscape

- Consolidation is old reliable
- Convergence is still evolving
- Retail access is now business driven
- Regional wholesale electric and gas players
- Many physical players, limited financial players

## The State of State Restructuring...the Glass is Half Full

- 25 states are on their way
- Approaching 70% of U.S. customers will have choice in the future
- Evolving wholesale market
- Liquidity and evolving market structures

## State Decisions to Implement Retail AccessAs of September 2000

- Regulatory

- Decision

- Law

- Enacted

- Both

- Retail access for large customers only

*State Decisions to Implement Retail Access**As of September 2000*

- D.C.

## The Promise of Deregulation:  “Lower Electricity Prices”

- Competitive Generation Market is Essential to Wholesale Market Development
- Reliance on Cheap, Plentiful Natural Gas **& **Highly Efficient Combined Cycle Technology
- Natural Gas Supply Market is Continent-Wide  --- Gas Delivery by Displacement
**The Public **_**Still**_** Expects This Result --- Sees Manipulation; Not Shortages**

## Perceptions and Beliefs

- “I am not going to let these generators, making eight and nine hundred percent profits unduly bring California to its knees.”   -- California Governor Gray Davis

## Oops, California Did It Again

- Restructured States, Reflect.....Reverse?
- Populist States, Pause to Reflect.....
- Is California’s Buy out a Western Solution
- Generation
- Wires

##  Deregulation Momentum Falters in Other States 

* **Deregulation Momentum Falters in Other States** *

## Slide 19

## RTO Rules & Filings -The Devil is in the Details

- Minimizing Intervention – Governance Emphasis
- Market Monitoring
- Determining Strategic Position
- Congestion and Seams
- Detail Avoidance
- System expansion
- RTO Role with Interconnection
- The Ides of December
- Should FERC be responsible for Market Legitimacy?

## Federal Restructuring

- The House – existing straw man
- The Senate – Interests of Senators
- The Administration
- FERC authority
- Chair and Commissioner Changes

## National Energy Legislation

- Production Oriented Bill
- Oil Concerns
- Coal-based Generation
- Natural Gas Production and Transmission
- Electric Transmission – Eminent Domain
- Interconnection Standards
- Conservation Title
- Environment Title

## The End of Regulatory Franchises Exposes Energy Firms and Consumers to a Complex Set of Risks

| Capacity
Transmission Addition
Pipelines Addition
Natural Gas Storage 
Capital
Credit 
Event
Unit Outage
Weather  | Commodity
Energy Price Risk - Volatility
NOx Emissions Allowances

Political
Price Caps
Regulatory Lag
State Retrenching |
| --- | --- |
|  |  |
|  |  |
|  |  |
|  |  |

## The Competitive Crossroad

_***Industry Risk Management Solution***_
** ****Insulate consumers from volatile market**
** ****Keep deregulation on track, accelerate competition trend**
** ****Grow the wholesale market, enhance liquidity, new derivatives**
** ****Improve the regulatory environment for risk management**
**Enhance DISCO earnings**

_***Status Quo***_
**Political & Regulatory Market Interventions**
** ****Deregulation Stalled**
** ****Companies hold generation as a hedge against market risks**
**  ****DISCOs go unhedged but retain POLR duties**
** ****Markets stay illiquid, futures, forwards and derivatives markets don’t evolve**

## Summary  

- Strategic Platform for Energy Industry is Enterprise Risk Management
- Business Interests Will Need to Drive Market Development
- Feds Won’t Restructure Industry - They Will Deliver Energy Supply Policy Legislation