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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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 3
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 4
Electric Power Regions of the U.S and Electric Power Regions of the U.S and CanadaCanada
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 5
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)
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 6
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.
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 7
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 8
““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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 9
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 GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 10
The New Market StructureThe New Market Structure
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 11
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 12
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 13
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 14
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.
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 15
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 16
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 GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 17
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 18
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 GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 19
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 20
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 21
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 23
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)
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 24
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)
25 THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP
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
26 THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 27
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
THE GEE STRATEGIES GROUPTHE GEE STRATEGIES GROUP 28
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