Restructuring Phase II:
The Development of
Customer Oriented
Competitive Markets
Douglas Horan
Senior Vice President, Strategy and Law
NSTAR
Electric Restructuring Roundtable
June 21, 2002
Restructuring at Mid-term:
Assessing Where We Are
•
•
•
•
•
•
The competitive generation market is working
New plants are being built
Energy prices are stable
All customers, large and small, are benefiting
Retail competition is growing
Utilities “protect and serve” small customers
2
The Competitive Generation Market is Working
Substantial Customer Savings
Average NSTAR Residential Customer
Total Monthly Bill
$67
$66
$65
$64
$63
$62
$61
Pre-Restructuring
1997
Today
• Customers in Massachusetts have saved over $3 billion since restructuring started
• The average residential electric bill is lower today than at any point since 1994
3
The Competitive Generation Market is Working
Substantial Investment in
New Power Plants
Ample Reserves
31%
33%
40%
35%
30%
25%
20%
15%
10%
5%
0%
19%
2003
2002
2001
• 22 new plants on-line or
under construction – 9955 MW
• 1998-2003: supply up 43% - demand up 16%
4
The Competitive Generation Market is Working
Vibrant Wholesale Competition
• Market rules are in place
• Multiple power producers are competing
• Market prices are stable
• Market power issues are being addressed
• Structural improvements to the market are in process
5
The Competitive Generation Market is Working
Many Large Customers Are
Shopping in the Retail Market
Energy Deliveries For NSTAR
Large Business Customers
41%
17%
Demand > 200 KW
42%
Standard Offer
Default Service
Competitive Supply
6
The Competitive Generation Market is Working
The Retail Market Is Growing
% of NSTAR retail energy (kWh) bought from
competitive retail suppliers
30
24
25
20
17
15
9
10
7
5
0
0
1998
1999
2000
2001
May-02
7
The Competitive Generation Market is Working
Small Customers Get Low,
Wholesale Market Prices
• Utilities, acting as the “customer’s agent”, buy in bulk in
the competitive wholesale market and pass the savings on
directly to customers.
• Utilities give all customers, (big and small),
a low, bulk power, competitive price.
NSTAR Default Rates (July 2002, cents/kwh)
Residential
5.64
Small C&I
5.67
Large C&I
5.92
8
The Competitive Generation Market is Working
All Customers (both Big and Small)
Receive Reliability and Risk Benefits
From the Competitive Market
• All customers share in the system reliability
produced by a healthy generation supply
• All customers are protected from the risk of bad
generation investments; no more “stranded costs”
9
The Restructuring Mid-term
Report Card
Major restructuring goals have been achieved:
– Substantial customer savings
– Competitive energy prices
– Reliable power system
– No stranded cost exposure to customers
But:
– No mass market for small customers has
developed
10
Restructuring – Next Steps
Restructuring Phase II:
Stay focused on the ultimate goal
of customer benefits
“I think developing a (competitive) system that
benefits consumers should be the primary focus
that people’s minds should be on. It’s not a
question of creating opportunities for marketers or
other entities.”
Paul Joskow, Economist
Public Utilities Fortnightly, April1, 2002
11
Restructuring – Next Steps
Be Realistic About the Prospects for
Mass Retail Marketing
Monthly Energy Bill Distribution for NSTAR Residential Customers
$84
$40
<$18
$24
• 400,000 customers have a monthly energy bill less than $18
• A 5% savings would be less than $1/month
12
Restructuring – Next Steps
Retail Competition Can Thrive Even
Without A Mass Retail Market
% of NSTAR Customers
99%
% of NSTAR Deliveries
54%
46%
Less than 1%
Residential, Small Comm.,
Small Industrial
Large Comm. & Industrial
13
Restructuring – Next Steps
Going Forward: Vigorously promote markets,
but provide customer-friendly utility energy
service for small customers.
• Recognize that markets are not “one size fits all”
• Vigorously promote competitive markets where they work
• Don’t try to create artificial or uneconomic mass markets
• Allow customers to choose; don’t force them to
• Recognize the value of utility energy service to small
customers who may not have market options
14
Restructuring – Next Steps
Moving Small Customers Into an Undeveloped
Mass Retail Market Poses Customer Risks
• Customer reaction to “slamming” or “assignment”
• Potential price increases resulting from moving
customers to a few retail suppliers in an undeveloped
mass market
• Customer confusion resulting from multiple “800”
numbers to call in “virtual” supplier structures
15
Restructuring – Next Steps
Key Ingredients for Continued
Success of Restructuring
• A healthy, competitive wholesale market
• Efficient transmission structures and rules
• Large customers: Encourage substantial
participation in the retail market
• Small customers: Allow retail participation, but
assure that utilities provide long term, customeroriented energy service
16
Restructuring – Next Steps
The NSTAR Proposal:
Utility Service to Large
Customers
• Quarterly procurement and monthly pricing
– Longer term pricing creates instability in the
market; (customers can “game” the utility rate
against current market)
• Additional pricing options are not needed
– Large customers can get options in the market
– Utility options distort the market
17
Restructuring – Next Steps
The NSTAR Proposal:
Utility Service to Small Customers
• The primary need for small customers is simplicity,
reasonable pricing and stability
• Utility role:
– Non-profit purchasing agent for customers
– Advocate for customer-centric market rules
• Longer term procurement and pricing (annual)
• As mass markets begin to provide benefits, customers will
switch
• Consumer protection/information is needed to avoid
misleading or unfair price comparisons
18
Restructuring Phase II:
The Development of
Customer Oriented
Competitive Markets
Douglas Horan
Senior Vice President, Strategy and Law
NSTAR
Electric Restructuring Roundtable
June 21, 2002