new market structures:

New Market Structures:New Market Structures:

APEC COAL TRADE AND INVESTMENT APEC COAL TRADE AND INVESTMENT LIBERALISATION AND FACILITATIONLIBERALISATION AND FACILITATION

(TILF) WORKSHOP(TILF) WORKSHOP Kuala Lumpur, MalaysiaKuala Lumpur, Malaysia

March 8, 2002 March 8, 2002

Robert W. Gee Robert W. Gee

President President

THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP

THE TEXAS ALTERNATIVE

THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 2

OverviewOverviewHow the Texas electricity market will be

fundamentally restructuredOperational Basics of “Texas Electric Choice”Purpose of Market Power Mitigation MeasuresRole of the ERCOT Independent System

Operator for wholesale marketFuture Challenges: Sufficient Generation and

Transmission Capacity


Texas Is UniqueTexas Is Unique

85 percent of market not subject to federal wholesale jurisdiction within Electric Reliability Council of Texas

Texas restructuring plan extends to wholesale market reforms

Areas outside of 85 percent are still subject to new law but application being deferred or under consideration for deferral


Electric Power Regions of the U.S and Electric Power Regions of the U.S and CanadaCanada


No Rush to Judgment in No Rush to Judgment in the Lone Star Statethe Lone Star State

Not under economic pressure for reformState took several years to weigh options

and alternativesHad benefit of witnessing experience in

other countries (U.K.) and other states (California, Pennsylvania)


50 State Average 50 State Average Residential Electric Bills & Residential Electric Bills &

Rates -1999Rates -1999Average Annual

Electric Bill

400

600

800

1,000

1,200

Average Annual Electric Rate

4

6

8

10

12

14

Texas 3rd highest average annual residential bill of $1,047 per customer.

Texas 27nd highest average residential rate of 7.55 cents per kilowatt-hour.


Basics of “Texas Electric Basics of “Texas Electric Choice”Choice”

Statewide customer choice began January 1, 2002 Integrated utilities split into separate businessesBase rates frozen until 2002“Price to Beat”: 6% rate reduction in 2002 for

residential and small commercial customersCustomers have access to renewable energy, energy

efficiency programs, and distributed generationMunicipal and cooperative utilities given choice to

opt in or out of competition


““Unbundling” Utilities: Unbundling” Utilities: Before and After under Texas Before and After under Texas

Retail ChoiceRetail Choice

Generation

Transmission &Distribution

Retail Services•Metering•Billing •Customer Service•Energy Service

Integrated Utility

All regulated

GenerationAncillary Services

Competitive

Transmission & Distribution

•Wires•Non-bypassable Fee•Nuclear

Decommissioning•Administer DSM•Metering

Regulated

Retail ServicesMeteringBilling Customer ServiceEnergy Services

Competitive


Fundamental Structural Fundamental Structural Market ReformsMarket Reforms

– Each utility must separate into a:Power Generation Company (PGC)Transmission and Distribution Utility (TDU)Retail Electric Provider (REP)

– The REP will be the entity with the primary contact with customers and will purchase energy and T&D service on their behalf


The New Market StructureThe New Market Structure


How Does It Work?How Does It Work? All REPs & PGCs have equal access to the transmission &

distribution grid Retail customers contact REPs for service REPs & PGCs contract for power to serve retail customers TDU bills REP for customers’ use of the grid REP sends bill to retail customer Aggregators can also bargain with REPs on customers’ behalf Customers have option to change suppliers Residential & small commercial customers (below 1 MW of peak

demand) who do not change still get 6% rate reduction


Uniform terms and conditions for delivery service

Published tariffs for delivery serviceSwitching, billing, and other information

exchanged electronically through uniform rules

Utilities do not provide competitive services

Key Features of Retail MarketKey Features of Retail Market


How Information and How Information and Power FlowsPower Flows

ResourcePower

Marketer(Optional)

Load Serving Entity (LSE)

Aggregator(Optional)

Custom

ers

Transmission and Distribution Service Provider (TDSP)

ER

CO

T

Qualified Scheduling Entity (QSE)

NOIEs (Municipality/Cooperative)

LegendKey Information FlowPower Flow

Non-Regulated OrganizationRegulated Organization

Public Utility Commission of Texas (PUCT)

ERCOT Competitive Market Participants


Preventing Market Power: Preventing Market Power: Ownership Restrictions on Ownership Restrictions on

GenerationGeneration Law limits generation ownership of single

company to 20 percent in power region Code of conduct for transactions between affiliates Requires divestiture by utility-affiliated power

generation company w/ greater than 400 Mw of capacity of at least 15 percent of its capacity during the first five years of retail competition, or until utility-affiliated company loses 40 percent of residential and small commercial business.


Price to Beat – The Price to Beat – The Competitors’ Edge Competitors’ Edge

Default rate offered by utility- affiliated REP at 6% discount for residential and small commercial customers

Affiliated REP must charge PTB until it loses 40% of PTB customers or January 2005, whichever first

In non-ERCOT areas, PTB must be maintained for 5 years

PTB can be adjusted for changes in market price of natural gas and purchased energy

No PTB for industrial and large commercial customers-- Open competition permitted

Difference between PTB and market price to serve represents “headroom” for non-affiliated REPs


8¢/kWh8.5¢/kWh

???

0

2

4

6

8

10

11/1/99 UtilityElectricity Price

1/1/02 AffiliatedREP’s Price toBeat (with 6%

discount)

1/1/02Competing

REP’s ElectricityPrice

¢ p

er

kil

ow

att

-ho

ur Generation &

Retailing

CTC

System BenefitFund

Transmission&Distribution

Bundled Rate

The “Price to Beat” – The “Price to Beat” – IllustrationIllustration


The Pilot ProgramThe Pilot Program

Began August 1, 2001 Limited to 5 percent of utility’s customers

or loadLarge commercial customer responseOver 100,000 residential customers

participatingCurrently, 28 REPs certified to do business


Essential Elements of a Essential Elements of a Workably Competitive Workably Competitive

Wholesale MarketWholesale Market Neutral organization responsible for:

– Access to transmission system– Reliability– Settle wholesale accounts– Manage customer switching

Policy promoting equitable interconnection process for new generation capacity

Mechanism for regional transmission planning Role of Electric Reliability Council of Texas Independent

System Operator (ISO)


The ERCOT ISO: Market The ERCOT ISO: Market PrinciplesPrinciples

Bilateral energy market; No Oversight of “Pool” or Power Exchange

Maintains reliability and provides access, but has minimal role in markets

ERCOT creates markets for balancing energy and ancillary services

Ancillary services can be self-provided (matching output to load and contingency reserves)

ERCOT will oversee congestion management by zones


How Bilateral Trades How Bilateral Trades OccurOccur

Private bilateral energy transactions

Scheduling Entities

Balanced schedules of loads and resources; and information and transactions required to support reliability.

Retail Customers

ERCOT Bilateral Market

Load Serving Entities

ERCOT

Resources

Electricity sellers Electricity buyers


Can Texas Avoid the Fate Can Texas Avoid the Fate of California?of California?

Will Texas have sufficient generating capacity?

Will Texas have sufficient transmission capacity?

Texas officials say yes with proper planning & oversight

22 THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP

New Electric Generating New Electric Generating Plants in TexasPlants in Texas

AustinSa

nAntonio

Houston

El Paso

Corpus Christi

Dallas

Harris County

Ellis County

27 Plants completed since 1995--9,343 MW

27 Plants under construction--13,991 MW

31 Plants announced or planned


ERCOT Reserve MarginsERCOT Reserve Margins

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2001 2002 2003 2004 2005 2006

Me

ga

wa

tts

Total Winter Peak Demand (MW)

Total Summer Peak Demand (MW)

Total Capacity (MW)


ERCOT Installed and ERCOT Installed and Planned Capacity – 2001Planned Capacity – 2001

7,798

6,193

18,454

57,606 59,622

95,211

61,376 1,390

2000 ExistingCapacity

2001 Capacityin Service

2001 CapacityUnder

Construction

CapacityUnder

Construction

RecentlyAnnounced

2000 ERCOTPeak Load

2001 ERCOTPeak Load(Forecast)


Transmission Constraints in Transmission Constraints in ERCOTERCOT

South

NorthNorth

RGV

South

West

East

DFW

East HVDC

ParisNorth HVDC

Houston ShipChannel

Corpus Christi

Laredo

CPL NORTH

CPL SOUTH


Transmission Projects in Transmission Projects in TexasTexas

DFW

East HVDC

ParisNorth HVDC

Houston ShipChannel

Corpus Christi

Laredo

3

8

8

5

4

6

17

13

15

20

16

14

12

18

7 19 23

921

22 11

2

1

10

17

Under Construction

Pending at PUC

Recommended by ERCOT

Under Consideration at ERCOT


ConclusionConclusionTexas is taking a gamble

that it has the “right stuff” others lacked

Unique factors may give it the edge

Time will tell whether they got it right


For More Information Contact:For More Information Contact:Robert W. GeeRobert W. Gee

PresidentPresident

THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP7609 Brittany Parc Court7609 Brittany Parc CourtFalls Church,VA 22043Falls Church,VA 22043

Tel: 703.593.0116Tel: 703.593.0116Fax: 703.698.2033Fax: 703.698.2033

Email: [email protected]: [email protected]

Special Thanks to Commissioner Brett Perlman,Special Thanks to Commissioner Brett Perlman, Public Utility Commission of Texas Public Utility Commission of Texas for assistance in providing graphicsfor assistance in providing graphics

new market structures:

Documents