Restructured Electricity Markets
Are Benefitting Consumers
William L. Massey
Counsel to the COMPETE Coalition
Presentation to NASUCA Mid-Year Meeting
Seattle, Washington
June 11, 2013
COMPETE Coalition
• More than 700 electricity stakeholders
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Customers
Suppliers
Traditional and clean energy generators
Transmission owners
Trade associations
Technology innovators
Environmental organizations
Economic development corporations
• COMPETE supports well-structured competitive
electricity markets for the benefit of consumers
www.competecoalition.com
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COMPETE Customer Members
• “Competition in Maryland’s electricity market has allowed my institution
to achieve significant savings for the electricity we consume and improve
our balance sheet. It has also allowed me to realize savings in my
electricity costs at home. Competition is a win-win for consumers and the
economy.” Van R. Reiner, President and CEO, Maryland Science Center
• “As a leader in affordable, senior housing and health care, with 330 living
communities under management across the nation, our organization
greatly benefits from the energy cost savings we achieve through
participation in competitive electricity markets. But competition is more
than just lower prices – competitive markets mean better customer
service and innovative products and services.” Alan Mileti, Utility &
Procurement Specialist, National Church Residences
• "Competitive markets are a successful key ingredient for Wal-Mart to
manage its energy needs and reduce costs in this ever changing
environment, allowing us to pass those savings on to our customers in the
form of low prices.“ Angela Beehler, Senior Director, Energy Regulation
and Legislation, Wal-Mart Stores
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COMPETE Customer Members
• “Electricity competition delivers lower prices, better service and a variety
of pricing options that are tailored to our specific needs and electricity
usage. With 5,798 company and franchise restaurants throughout the
nation, our experience is that competition in electricity gives us much
needed certainty to plan and manage our budget.” Russell S. Subjinske,
Senior Director of Energy, Wendy’s Quality Supply Chain Coop, Inc.
• "Among the cornerstones of our greenhouse gas reduction and
sustainability initiatives are the benefits Safeway receives in competitive
power markets. Customer choice for energy supplies has enabled Safeway
to be a pioneer and leader in this area. Competitive energy markets are
crucial to our business, and the COMPETE coalition is one of our key
partners in the ongoing effort to improve and expand competitive energy
markets across North America. These markets help businesses like ours
provide wide-ranging benefits to our customers, employees and the
communities we serve”. George Waidelich, Vice President, Energy
Operations, Safeway
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“Restructured” Not “Deregulated”
Markets
• Prices charged must be in accordance with regulatory
policies that ensure against market power.
• Wholesale markets administered by ISOs and RTOs are
overseen by independent market monitors and FERC’s
enforcement office.
• Substantial penalties are assessed for violations.
• Regulators ensure adequate resources are in place,
regardless of financial conditions.
• Bulk power system is subject to comprehensive reliability
regulation.
• Utilities may not merge or acquire or dispose of assets
without prior regulatory approval.
• Financial transparency is required.
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Customer Value
• Supply side options
– Competitive generating plants (efficiency, innovation)
– Customers can shop for desired generation mix (green energy,
etc.)
• Demand side options
– Demand response (DR) providers offer innovations allowing
consumers to reduce or modify electricity consumption
– Customers can earn revenue from selling DR into market
– Displaces need for costly new generation (PJM’s DR = 16 to 21
base load power plants)
– Mitigates upward market price pressures (adds elasticity)
– Supports reliability (NERC)
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Customer Value
• Financial risk is borne by service providers, not customers
– Lowers customer’s financial risk
– In monopoly markets, risk of cost overruns shifted to consumers
• Providers focus on individual customer needs; not “one size
fits all” as in monopoly service
– Flexible contract lengths and other terms
– Risk management products (fixed prices, flexible or indexed
prices, etc.)
– Renewable energy content
– On-site services (building retro-commissioning, on-site
generation, etc.)
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Customer Value
• Increased energy efficiency
– Means lower costs to businesses and lower prices to their
customers
• Customer revenue from selling services into the market
– Enabled by innovative storage technologies and demand
response services
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Additional Benefits of Competitive
Markets
• Fewer new generation plants needed
– Suppliers have incentives to increase operational efficiency
– Customers have ability to manage portfolios for increased
efficiency
• Reliability
– Competitive markets have proven to be reliable and ensure
resource adequacy
• Customers are in charge
– Customers rather than regulators or monopolies decide such
issues as pricing, risk, generation mix, contract length, green
power, demand response options and customer service
• Environmental
– Choice and good price signals drive customer demand for clean
energy solutions
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Retail Market Experience
• Between 2008 and 2011 (a time of flat electricity demand growth):
– Electricity load served competitively grew 40%
– Customer accounts served under retail choice grew over 53%;
residential accounts grew by over 54%
• Ohio:
– In 3 service areas, competitive suppliers serve 67% - 75% of
residential customers’ energy (in the other 3 areas: 22% - 46%)
– In same 3 areas, competitive suppliers serve 76% - 85% of total energy
(in the other 3 areas: 49% - 72%)
• Connecticut:
– 44% of residential customers have switched to competitive suppliers
– 83% of medium and 92% of large C&I customers have switched
• Pennsylvania:
– Competitive suppliers now serve 36% of residential load and 65% of
total load
– Number of shopping customers increased 33% (Jan. 2012 - Feb. 2013)
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Retail Market Experience
• Illinois:
– More than 60% of electricity usage served by competitive suppliers
– Municipalities are aggregating power loads to bargain for best deals
• Michigan:
– 10% cap on shopping costing more than $130 million in annual savings
– Over 10,000 customers on waiting list for access to competitive
suppliers
• Arizona:
– Commission is gathering input on whether to introduce retail
competition
• Indiana:
– Legislature has directed a study of electric customer choice programs
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Wholesale Markets:
RTOs Support Retail Markets
• RTOs provide the best platform for competitive retail
markets
– Timely price signals that reflect market fundamentals
– Independent administration  level playing field
– Large regional scope  a wide array of sellers and aligns
planning and operations with physics
– Independent monitoring
• Every competitive retail electricity market is in the footprint
of an RTO
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Regional Transmission Organizations
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RTOs: Value to Customers
• Wholesale prices for 2012 in many RTO markets are at
lowest levels in a decade or longer: PJM, NY ISO, ISO-NE,
ERCOT & CAISO
– PJM: prices fell 23% during 2012
– NYISO: 2012 prices 52% lower than in 2008
– ISO New England: in 2012, prices fell 23% and total amount
paid for electricity fell more than $1 billion.
– To extent driven by lower fuel prices, lower energy prices show
the markets are performing well (prices reflect fundamentals).
• Efficiencies produced by RTO markets are keeping retail
prices affordable and saving consumers billions of dollars
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Additional RTO Benefits
• Innovative resource developers attracted to RTO markets
– Fair rules, large regional scope, and transparent locational prices
that correctly value energy.
– Broad regional scope and diverse resources provide economical
balancing services for variable generators.
• Renewable resources
– Over 76% of U.S. installed wind capacity is moving to consumers
within RTO footprints.
• Demand response
– Almost 32,000 MW available in U.S. RTOs (about 7% of their
peak)
• Innovators are installing advanced technologies in RTO
markets
– State-of-the-art storage devices (batteries and flywheels)
provide efficient way to quickly adjust generation to balance
demand
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RTOs Are Expanding
• Entergy companies joining MISO
– $1.4 billion expected savings in first 10 years
• East Kentucky Power Cooperative joined PJM
– Almost $132 million expected savings in first 10 years
• Nevada cooperative (Valley Electric Association) and
California municipality (Colton) joined CAISO
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Competitive Electricity Markets:
Resource Adequacy
• Markets need a forward-looking mechanism to ensure
future reliability - - regardless of market structure
Forward capacity markets (PJM, ISO-NE)
• Competitive auctions to identify least-cost combination of
resources to meet future reliability needs 3 years ahead
– New generation, existing generation uprates and retirement
deferrals, DR
• Objective is not solely to add new capacity
• Investors will commit new capacity when prices above new
plant costs
– Investors bear the risk of bad decisions.
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Competitive Electricity Markets: Resource
Adequacy & Emission Limits - PJM
• Announced retirements of nearly 14,000 MW of coal-fired
generation over 3 years
• Capacity market → record amounts of additional
generation capacity
– 5,346 MW: 2015-2016 delivery year (May 2012 auction)
– 5,463 MW: 2016-2017 delivery year (May 2013 auction)
• 2016-2017 delivery year auction results:
– Prices in three delivery areas down 29%, 56% and 68% (price in
transmission constrained NJ up 31%)
– Capacity imports nearly doubled
– 12, 408 MW of DR; 1,117 MW of energy efficiency
– Reserve margin: 21.1% (5.5% above target)
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Competitive Electricity Markets &
Transformative Technologies
• Innovation may transform the industry
– Distributed generation (e.g., rooftop solar), storage, prices to
devices, electric vehicles, smart grid, DR and micro-grids
– Consumers get more alternatives to meet their energy needs
• Fosters more competition and reliance on markets
– Innovation is best facilitated by opportunities and pressures of
competitive markets
– For competitive services, consumers should get to choose
products and suppliers, and providers should have pricing
freedom
• Regulatory policies
– Keep entry barriers low
– Ensure fair market rules and a level playing field
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Questions
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