Competitive Electricity Markets: They Work For Customers

Covington & Burling LLP

William L. Massey
On Behalf of

COMPETE Coalition
Michigans Electricity Market: Time For Gardening Lansing, Michigan October 15, 2012

The COMPETE Coalition

677 electricity stakeholders
Customers Suppliers Traditional and clean energy generators Transmission owners Trade associations Technology innovators Environmental organizations Economic development corporations

COMPETE supports well-structured competitive electricity markets for the benefit of consumers
www.competecoalition.com
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COMPETE Customer Members

Competitive markets help Leggett & Platt lower costs because they allow us to choose from an array of competitive products and services and give us the flexibility needed to manage our energy portfolio. Steve Elsea, Leggett & Platt, Inc. One of the key cornerstones of our greenhouse gas reduction and sustainability initiatives is competitive power markets. Safeway could not be a leader in these efforts without restructured markets; competitive markets are critical to our business. George Waidelich, Safeway Were learning more ways to deliver efficiency savings to customers and shareholders. Were striving to use 100 percent renewable power by looking at every possible project. Under current structures, the flexibility of competitive markets provides more opportunities through better access to the grid. Angela Beehler, Wal-Mart Stores 7-Eleven, Inc (SEI) continues to realize utility cost savings and cost avoidances by participating in competitive electricity markets. Informed energy decisions in deregulated markets help mitigate SEI costs and help drive the implementation of more energy effective store equipment. Mark Morgan, 7-Eleven Inc.
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Well Structured Wholesale Market Platform

Michigan is in the Midwest ISO and PJM Interconnection wholesale markets and well-situated to get maximum consumer benefit from competitive retail markets A well structured competitive wholesale electricity market provides the ideal platform for competitive retail markets Midwest ISO and PJM
Independent administration Day-ahead and real-time spot markets Single-clearing price auction Large regional scope
Lowest cost resource selection Aligns planning and operations with physics Wide array of resources Behavior and rules assessments
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Level playing field; provides confidence needed for investment Transparent prices for resource management

Independent monitoring

Customer Value in Competitive Markets

Lowest available prices. EIA data show the following between 1997 and 2011:
Retail rates increased only 1% in retail choice states but increased 8.8% in states that rely on monopolies Residential rates decreased 3.8% in retail choice states but increased 4.2% in other states Commercial rates decreased 6.3% in retail choice states but increased 2.7% in other states
Prices adjusted for inflation; based on EIA and BLS data
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Customer Value
Supply side options
Competitive generating plants Customers can shop for desired generation mix (green energy, etc.) Demand response providers offer innovations allowing consumers to reduce or modify electricity consumption Example: customers can supplant peak demand using solar technology and/or smooth peaks using advanced battery storage systems
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Demand side options

Synergies

Customer Value
Financial risk is borne by service providers, not customers Providers focused on individual customer needs; not one size fits all as in monopoly service
Lowers customers financial risk

Flexible contract lengths and other terms Risk management products (fixed prices, flexible or indexed prices, etc.) Renewable energy content On-site services (building retro-commissioning, on-site generation, etc.)
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Customer Value
Increased energy efficiency
Means lower costs to businesses and lower prices to their customers

Customer revenue from selling services into the market

Enabled by innovative storage technologies and demand response services

Additional Benefits of Competitive Markets

Environmental Fewer new generation plants needed Reliability
Choice and good price signals drive customer demand for clean energy solutions Suppliers have incentives to increase operational efficiency Customers have ability to manage portfolios for increased efficiency Competitive markets have proven to be reliable Well structured markets ensure resource adequacy DR supports reliability and is counted on to meet resource adequacy requirements (NERC) Customers rather than regulators or monopolies decide about such issues as pricing, risk, generation mix, contract length, green power, demand response options and customer service
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Customers are in charge