COMPETITIVE ELECTRICITY MARKETS

March 15, 2011

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PA Customer Choice Legislation Distribution service remains regulated by

PAPUC. Transmission service regulated by FERC

[PJM tariff]. Transmission service essentially a pass-through cost for supply service

Generation - major component of supply service. “Unregulated” in PA

Administrative costs for providing supply service [back-office trading, hedging, systems, credit, working capital, etc].

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Price to Compare (PTC)

Includes generation, transmission and administrative costs of providing supply service.

Provides apples to apples comparison for consumers

PAPUC provides website for PTC comparison for competitive suppliers and utility default supply service.

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Retail Rate Design

Policy Drivers – (1) incentives for energy efficiency, and (2) ease of price comparisons.

PAPUC Policy – simple cents/kwh rate. Minimize or phase out declining block rates

and demand rates. With smart meters – evolution towards Time

of Use or dynamic rates [Critical Peak Pricing, Critical Peak Rebates, Time of Use, Day Ahead hourly pricing, and Real time hourly pricing].

EGSs can customize their pricing structures to fit their customer needs.

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Wholesale Rate Design

Energy – Locational Marginal Price [LMP]; bilateral contracts, hedges, etc.

Capacity – Each customer assigned a peak load contribution (PLC); demand-based determinant based on customer usage during the 5 highest hours of usage in PJM.

Ancillary services – demand and energy based charges; minor cost element

Transmission – Network Integrated Transmission Service; demand charge based on customer usage during highest hour of usage in each EDC service territory.

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Competitive Markets Segments

Electricity Supply Curtailment/Conservation

Service Providers Meter Service Providers Billing Service Providers Future – EV charging stations?

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Customer Markets Segments

Default Service Customer Segments – residential, small commercial [<25kw], medium customers [25-500kw], large commercial [>500kw]

Distribution/Transmission Service – residential [heating and non-heating], small commercial [secondary], non-profits, and primary and sub-transmission industrial customers], lighting.

Economic Riders – generally just distribution cost discounts now [not supply cost discounts] – often related to promoting local employment/industry.; Can be related to competitive fuel competition.

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Cost Unbundling Decisions

Generation costs Transmission costs Procurement costs Working capital costs Bad debt expense costs Billing and collection costs Overall – incremental vs. full cost

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Licensing/Regulation

Electric Generation Suppliers [EGSs – regulated by PAPUC and PJM].

Conservation Service Providers [CSPs participating in utility energy efficiency programs – registered with PAPUC]

Curtailment Service Providers [PJM]. Metering Service Providers – EDC

oversight, requirements included in EDC tariffs.

Billing Service Providers – no experience yet with EDCs. Some EGSs may use them.

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Regulation

Wholesale Markets – FERC FERC regulates via PJM tariffs in Pennsylvania FERC regulates wholesale generators, transmission service, and

various related ancillary services [black start, reserves, frequency regulation, and administration of wholesale markets]

FERC regulation entails market power mitigation of market-based services [generation], and regulation of cost-based services [transmission].

State - PAPUC Cost based regulation of distribution service. Approve default supply service procurement plans of

EDCs. Lighter regulation of EGSs – don’t regulate contract

pricing, only certain consumer protection aspects of supply service.

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EGS Regulations

EGS Consumer Protection Regulations [Chapter 54, subchapter A, Sections 54.1-54.9]

Mostly applicable only to residential and small business customers. Standardized industry terms must be used. Bill format requirements Contract content and disclosure requirements Informational disclosure requirements Marketing and sales requirements Customer information privacy requirements Complaint handling requirementsEGS Licensing Regulations – [Chapter 54, Subchapter B, Sections 54.31-54.43].EGS transfers of customers to default supply service regulations. [Section

54.123]EGS Reporting Requirements – Sales Activity [Chapter 54, Subchapter H,

Sections 54.201-54.204]License Application: http://www.puc.state.pa.us/electric/electric_suppliers.aspx* EGSs must execute certain documents and meet credit requirements to

transact in wholesale markets pursuant to PJM tariffs and operating agreements.

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EDC Regulations -Retail Choice

Code of Conduct [deals with equal treatment of affiliated and non-affiliated EGSs]

Quarterly Retail Choice Reporting Requirements

Prohibition on switching restrictions from EDC default supply service to competitive EGS supply service.

http://www.pacode.com/secure/data/052/chapter54/chap54toc.html

QUESTIONS?

http://www.puc.state.pa.us