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Retail Competition:Managing a Difficult Transition
David L. O’ConnorCommissioner
Massachusetts Division of Energy Resources
(DOER)
Presentation to
National Governor’s Association
Executive Policy Forum on Electric Restructuring
April 6, 2001
t:\pub_info\presentations\restructuring\NGA April 6, 2001.ppt
Restructuring Goals
in Massachusetts
Reduce electricity prices to all customers
Provide choice of supplier to all customers
Maintain the reliability of the electric system
Maintain the quality of regulated services
Settlements, then the Law
Roundtable Negotiations 1995
“Power Choice” 1996
MECo Settlement 1996
BECo & EUA Settlements 1997
Legislation 1997
Retail Access Day March 1, 1998
Key Provisions of Massachusetts Act
10/15% Rate Reduction
Choice of Power Supplier
Stranded Cost Recovery
Standard Offer and Default Service
Public Benefit Programs
Consumer Protection and Education
Power Plant Siting
Results So Far Consumers Saved at Least $1.5 Billion
Utilities Divested 90% of Plants
Stranded Costs Reduced by 30%
Consolidation of Distribution Companies
Many new Power Plants being Built
Retail Market Developing Very Slowly
Competitive Suppliers Focused on Large C & I
Municipal and Other Aggregation Groups Formed
Standard Offer Service
Power supplied to eligible customers at “fixed” rates
Price at least 10% lower than pre-restructuring
Generation costs increase / stranded costs decrease
Customer may choose competitive supplier any time
Recent price increases due to fuel costs
Ends in 2005
Massachusetts Standard Offer Prices Are Low But Going Up
Source: National Grid
Ce n
ts/k
Wh
Default Service
Provides any customer with power at any time
New customers; returns from competitive suppliers
Through Dec. 2000: equal to Standard Offer price
January 2001: “average monthly market price”
Power supply purchases on 6 and 12 month basis
Continues indefinitely
Default Service Prices Are Going Up Too
0
1
2
3
4
5
6
7
8
9
10
Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01
cen
ts/k
Wh
Source: WMECo 2000 Reconciliation Filing & DOER
Wholesale Generation
Default Service Retail (Residential)
What Massachusetts is Trying to Do
Increase retail response to peak prices
Diversify utility power purchases to hedge price risk
Help retail suppliers reach default customers
Energy Efficiency and Load Management Reduce Clearing Prices
$0.00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
1 3 5 7 9 11 13 15 17 19 21 23
Hour
$/M
W ECP
ADJ_ECP
Source: ISO-NE, DOER Analysis
Wholesale Prices would have been considerably higher on June 7, 1999 without the benefits of Load Management and Energy Efficiency
New England Demand Response ProgramSummer 2001
Up to 600 MW of reductions (2.5% of peak)
3,000 to 5,000 large C&I customers
Demand reduction or distributed generation qualify
ISO-NE pays Load Servers (LSE’s) who pay customers
LSE’s paid “reserves” price for all hours
LSE’s paid “energy” price for dispatched hours
Differences in Utility Power Supply Purchasing
Summer 2000
Contracts, Own Generation
(%)
Spot Market
(%)
California 45 55
New England 80 20
Source: Anjali Sheffrin, Presentation: CMR-Global Market Power Mitigation, October 4, 2000
Changes to Default Service Procurement
0
2
4
6
8
10
12
Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01
Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02
Monthly Prices
Average Price
Cen
ts/k
Wh
Source: MECO Filings with MA DTE
6.4
8.4
Default Service Customers Are IncreasingTotal Monthly kWh Sales
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
April 1999 December 1999 December 2000
Competitive Supply
Default Service
Standard Offer
Source: DOER Customer Migration Numbers
Distribution Companies Co-Market
with Retail Suppliers
Distribution Company
Default ServiceCustomers
Wholesale Suppliers
Retail Suppliers
Reports and Information
Available at DOER Website:
www.state.ma.us/doer
Customer Migration Data
1998 Market Monitoring Report
1999 Market Monitoring Report