Addressing Electric Reliability and High Energy Costs This Winter and Beyond

Addressing Addressing Electric Reliability and Electric Reliability and

High Energy CostsHigh Energy CostsThis Winter and BeyondThis Winter and Beyond

Electricity Restructuring Roundtable Electricity Restructuring Roundtable #92 #92 BostonBoston

December 9, 2005December 9, 2005

Jerrold OppenheimJerrold Oppenheim978-283-0897978-283-0897

JerroldOpp@JerroldOpp@DemocracyAndRegulation.comDemocracyAndRegulation.comwww.DemocracyAndRegulation.comwww.DemocracyAndRegulation.com

Jerrold Oppenheim www.DemocracyAndRegulation.com

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Gas prices: + 50% 2 yearsGas prices: + 50% 2 years+ 80+% 3 years+ 80+% 3 years

Massachusetts Residential Natural Gas Prices

0

2

4

6

8

10

12

14

16

18

20

$/00

0 cu

ft

Source: US DOE EIA Jerrold Oppenheim www.DemocracyAndRegulation.com

annual monthly


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media.washingtonpost.com/.../PH2005072701614.jpg

/jimwestphoto.com/galleryEconomic/p-hg-42-13.jpg


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We have a good startWe have a good start


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Prices: Prices: Price levels; price stabilityPrice levels; price stability

EfficiencyEfficiency

ProcurementProcurement


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Efficiency lowers priceEfficiency lowers price

1% reduction in national natural gas 1% reduction in national natural gas demand lowers long-run price by 0.8% - demand lowers long-run price by 0.8% - 2.0%2.0%

… … and maybe much more in short-runand maybe much more in short-run

-- R. Wiser, M.Bollinger, M. St. Clair, -- R. Wiser, M.Bollinger, M. St. Clair, Easing the Natural Gas CrisisEasing the Natural Gas Crisis, Lawrence , Lawrence Berkeley National Lab (LBNL 56756, Berkeley National Lab (LBNL 56756, Jan. 2005, pp. 18-19, Jan. 2005, pp. 18-19, http://eetd.lbnl.gov/EA/EMP)http://eetd.lbnl.gov/EA/EMP)


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HEAT (c. 140)HEAT (c. 140)

Extend existing program 5 yearsExtend existing program 5 years Tax creditsTax credits Zero/low-interest loansZero/low-interest loans Public building investmentsPublic building investments PV loansPV loans Fuel cell partnershipFuel cell partnership Appliance efficiency standards (c. Appliance efficiency standards (c.

139)139)


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Price StabilityPrice Stability

Illustrative Portfolio Approach

Synapse Energy Economics

Year 10

20%

20%

20%

20%

20%

Year 11

Year 9

Year 8

Year 7

Year 6

Year 5

Year 4

Year 3

Year 2

Year 1

Subsequent Ladder Contracts

Rollover Ladder Contracts

Original Ladder Contracts

Long-Term (Renewables)

Discretionary/Short Term


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DTE 05-85 (NSTAR) settlementDTE 05-85 (NSTAR) settlement

Laddered electricity procurement:Laddered electricity procurement:50% one year, 25% each 2 & 3 years50% one year, 25% each 2 & 3 years

Work cooperative with AG and LEAN Work cooperative with AG and LEAN re: re: possible longer terms for gas and electricitypossible longer terms for gas and electricity

(secs. 2.21, 2.22)(secs. 2.21, 2.22)

Also FERC litigationAlso FERC litigation


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More strategies to address More strategies to address high prices: HEAThigh prices: HEAT

LIHEAP supplementLIHEAP supplement Broaden eligibility for low-income rateBroaden eligibility for low-income rate Moderate income tax deductions to $800Moderate income tax deductions to $800 Utility arrearage managementUtility arrearage management


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Every state should have a Every state should have a foreign policyforeign policy


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Arrearage managementArrearage management

..

Agency

Customer/client

Utility


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LEAN Case ManagementLEAN Case Management

..

3 year price increase

0%

20%

40%

60%

80%

100%

120%

140%

natural gas oil electricity

Low-income Arrears, 2 year change

53%

161%

0%

-22%-50%

0%

50%

100%

150%

200%

Utility A Utility B Utility C Case mgmt X Case mgmt Y

1100%

Note: 2/3 of case mgmt arrears stable or declining

Note: 1-year TNP +~1/3

Partial and preliminary dataPartial and preliminary data

Jerrold Oppenheim

www.DemocracyAndRegulation.com


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Value of low-income rate has Value of low-income rate has erodederoded

Erosion in value of Massachusetts low-income electricity discount

1997 2005 Loss Res. Low-inc. L-I > Res byNSTAR

Boston Edison 28% 21% 25% 16% 28% 71%Cambridge non-heat 24% 20% 18% 11% 17% 57%

heat 25% 21% 16% 15% 21% 42%Commonwealth non-heat 23% 18% 23% 10% 18% 76%

heat 26% 9% 65% 6% 31% 405%Massachusetts Electric 24% 18% 24% 13% 21% 65%Fitchburg Gas & Electric 24% 7% 71% 19% 45% 143%Western Mass. Electric

* Note: Restructuring promised rate reduction of 15%. Rates compared are average 1997 and estimated average per kWh at March 1, 2005.

Erosion in value of Massachusetts low-income gas discount

1999 2004 Loss Res. Low-inc. L-I > Res byNSTAR Comgas non-heat 19% 15% 21% 27% 33% 24%

heat 18% 13% 29% 42% 51% 22%KEYSPAN Boston Gas non-heat 26% 17% 35% 57% 76% 34%

heat 20% 11% 46% 75% 96% 27%NiSource Bay State Gas non-heat 18% 2% 87% 34% 60% 75%

heat 18% 12% 35% 55% 67% 22%

Source: Compiled by Theo MacGregor from published Company and DTE data.

Rate increase, 2005 v 1997*Value of Low Inc. Rate

Value of Low Inc. Rate Rate increase, 2004 v 1999


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D.T.E. 05-27 D.T.E. 05-27 (Bay State Gas, Nov. 30, 2005) (Bay State Gas, Nov. 30, 2005)

““The discount level currently The discount level currently available to the R-4 [low-income] available to the R-4 [low-income] rate class should not erode” (p. 330)rate class should not erode” (p. 330)


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DTE 05-85 (NSTAR) settlementDTE 05-85 (NSTAR) settlement

NSTAR, AG, LEAN will confer about NSTAR, AG, LEAN will confer about possible adjustments to low-income possible adjustments to low-income rates (sec. 2.8)rates (sec. 2.8)


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ReliabilityReliability

““many generators have many generators have interruptibleinterruptible [gas] contracts [gas] contracts … the availability of gas transportation for non-firm … the availability of gas transportation for non-firm customers within New England was a limiting factor customers within New England was a limiting factor and a root cause of … gas unit unavailability. and a root cause of … gas unit unavailability. Additionally, some generators with firm gas Additionally, some generators with firm gas transportation engaged in fuel arbitrage, transportation engaged in fuel arbitrage, selling their selling their firm gasfirm gas supplies” (pp. 1-2) supplies” (pp. 1-2)

““the January 2004 Cold Snap … did push the the January 2004 Cold Snap … did push the electricity system in New England close to its limits.” electricity system in New England close to its limits.” (p.2)(p.2)

Source: ISO New England Market Monitoring Dept., “Final Report on Electricity Supply Conditions in New Endlgnad During the January Source: ISO New England Market Monitoring Dept., “Final Report on Electricity Supply Conditions in New Endlgnad During the January 14-16, 2004 Cold Snap” (Oct. 2004)14-16, 2004 Cold Snap” (Oct. 2004)


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ReliabilityReliability

long-term contracts of sufficient long-term contracts of sufficient duration to ensure that the following duration to ensure that the following generation can be financed: generation can be financed: renewable energy generation needed to renewable energy generation needed to

meet the RPS meet the RPS generation needed for reliabilitygeneration needed for reliability


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W W W.W W W. DEMOCRACYANDREGULATION.DEMOCRACYANDREGULATION.

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1-978-283-08971-978-283-0897 JerroldOpp@ JerroldOpp@

DemocracyAndRegulatDemocracyAndRegulation.comion.com


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About the SpeakerAbout the Speaker

Jerrold Oppenheim is an independent consultant and attorney who has advised and represented low-income and other utility consumer advocates, government agencies, and utilities across the country for almost 35 years. A graduate of Harvard College and Boston College Law School, he led utility litigation and argued precedent-setting cases for four Attorneys General in New York State and Massachusetts and for Legal Services in Boston, Chicago and New York City. He has spoken and published on four continents, including Democracy And Regulation with Theo MacGregor and Greg Palast, published by Pluto Press (London) and winner of the ACLU Upton Sinclair Award.

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Addressing Electric Reliability and High Energy Costs This Winter and Beyond