Transcript Rodriguez Presentation 1-28-05

Competition for small customers
Next Steps in Massachusetts
Sharon Rodriguez
Vice President, Market Development
National Grid USA
Agenda




The Massachusetts market for small
customers today
A vision for the future Massachusetts market
Barriers to competition
Potential solutions
2
The market for small
customers
Number of
Active
Suppliers is
Low
Level of
Switching
is Low
Customer
Interest
is Low
3
Has Restructuring Failed?

Despite the stagnated competitive market for small customers,
Massachusetts’ customers have saved an estimated $3.6billion
UK
Cumulative % REAL change in Domestic Electricity &
Wholesale Gas Prices from 1990
60%
60%
40%
40%
20%
20%
0%
0%
UK Dom Elec Prices
MA Dom Elec Prices
UK Gas Prices
26% real
reduction
MA
 Electricity
13% real
reduction
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
-40%
1992
-40%
1991
-20%
1990
-20%
 Electricity
MA Gas Prices
4
Massachusetts price data - City Gate Gas/Domestic Electricity Price (Department of Energy, EIA)
UK price data- Gas at UK Delivery Points / UK Domestic Electricity Prices (Department of Trade and Industry)
All Figures are rebased to 1990 levels using the country specific GDP deflator
Has Restructuring Failed?


Despite the stagnated competitive market for small customers,
Massachusetts’ customers have saved an estimated $3.6billion
Price reductions are comparable to those seen in the UK
UK
Cumulative % REAL change in Domestic Electricity &
Wholesale Gas Prices from 1990
60%
60%
40%
40%
20%
20%
0%
0%
UK Dom Elec Prices
UK Gas Prices
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
-40%
1992
-40%
1991
-20%
1990
-20%
MA Dom Elec Prices
MA Gas Prices
 Electricity
26% real
reduction
 Gas prices fallen
25% (real)
MA
 Electricity 13% real
reduction
 Gas prices risen
30% (real)
5
Massachusetts price data - City Gate Gas/Domestic Electricity Price (Department of Energy, EIA)
UK price data- Gas at UK Delivery Points / UK Domestic Electricity Prices (Department of Trade and Industry)
All Figures are rebased to 1990 levels using the country specific GDP deflator
Mass. Electric Vision –
A vibrant retail market
What is a vibrant retail market

Many suppliers competing to retain and acquire customers
 Every customer has a choice of supplier and a choice of
product
 Customers are actively choosing to move between
suppliers rather than away from utilities (utilities
eventually exit commodity business)
 Suppliers are entering and exiting the market
 The occasional supplier default is seen as a sign of
competition and managed within the market
framework
6
Mass. Electric Vision –
A vibrant retail market
Why do we need it



Competitive suppliers with a profit stake in actively
managing risk on behalf of their customers will provide
wholesale market pressure
 Avoids unnecessary price increases and continuing
market fixes – RMR/LICAP mechanisms
 Sustainable solution to capacity adequacy
Customers can switch supplier thereby leaving the risks
of procurement decisions with Competitive suppliers
 Avoids future stranded costs
Customers can benefit from innovative products
7
UK experience - Capacity Adequacy
England & Wales Annual Avge Pool Price Apr
1990 -Mar 2000 / OTC price Apr 2001-Mar 2004
New
Market
Rules
27
25
23
21
8GW
Asset
Divestment
19
17
2003/4
2002/3
2001/2
2000/1
1999/0
1998/9
1997/8
1996/7
1995/6
1994/5
1993/4
1992/3
1991/2
15
1990/1
GB Pounds / MWh
29
8
Barriers to a vibrant market
Standard
Offer Price
Scale
Participation
9
Standard
Offer Price

Standard Offer Prices Below Wholesale.
Will Default Service Be Better?
Current procurement approach


Provides reasonable balance between stability and
connection to market price
Alternative utility procurement policies




Longer term contracts with utilities
Laddering


But, need to ensure competitive market is able to
function effectively and there may be better ways
than utility procurements
10
Scale
Participation
Other Barriers


Organic growth is difficult and costly
to achieve from a zero base
Properly designed retail aggregations
can provide a platform for competition
 From initial aggregation new
customer links forged with
aggregators
 Aggregators can compete against
each other to retain and grow their
customer base
 Other competitive suppliers can
compete for customers who have
left ‘mother utility’
 Customer education possible at a
time of real options

All customers should be able to
benefit from competitive market
 Customer credit is a key
barrier
 Mass. Electric proposes fully
reconciling purchase of
supplier receivables within
an aggregation program to
permit all customers to
participate without hindrance
from their credit history
11
Conclusion



Restructuring has delivered significant
benefits
A vibrant retail market is essential
There are some steps that can be taken to
facilitate the next stage of the transition to a
fully competitive market
12