Unlike other competitive marketplaces, a ‘default’ supplier of energy is required since nearly everyone needs energy:  if all the competitive suppliers left a marketplace, who would supply energy?  It is not a question of “POLR or not”, but rather “how do we POLR?”

Several models exist:

• Legacy model.  The utility controls the bulk of energy supply so they set the price using some kind of formula.  In the old days of silo energy solutions, this usually hinged on the utility’s cost of generating power.
• ERCOT model.  In the mid 2000’s Texas broke ground with a POLR option that made competitive energy suppliers the POLR.  Using a formula that hinges price of retail POLR supply on the price of wholesale energy made it cost effective for suppliers to be POLR suppliers as well.
• NJ Auction model.  Also in the 2000’s NJ introduced their ‘BGS Auction’, which invited energy wholesale suppliers in to bid on ‘tranches’ of customer supply.  NJ developed a model where 1/3 of energy supply was purchased each year, helping to ‘levelize’ the cost of fuel.  Several other markets, including PPL, have adopted similar auctions.  PPL’s default price changes quarterly.

Competition shines light into previously hidden processes.  With wholesale markets in place, there should be little magic into how the ‘default’ price is calculated.  One even can question why the LDC should manage this process, moving closer to the ERCOT model?

Many legislatures and commissions originally hedged their competition bets by capping POLR rates.  The use of wholesale ‘auctions’ is another hedge to protect consumers.  Yet these ‘auctions’ may be sucking the life out of the competitive marketplaces, making it too difficult for suppliers to compete.

In a time where all hands are needed on deck helping consumers conserve energy, and increasing supply for ever expanding energy needs, is now the time to eliminate competitive energy suppliers:  job-creators, entrepreneurs, innovative thinkers, investors?

We think not.

When Pennsylvania opened its market in 1998, legislators were not so confident in the hand they were dealt.  They left the ‘default’ commodity providers as a part of the utility, and further hedged their bets with ‘caps’ that served as an ‘emergency valve’ in case energy choice did not work as designed.  After a flicker of hope for choice, higher wholesale costs essentially shut down the PA electric marketplaces.  PA residents benefited from artificially low rates set by these caps, which expire 2010 and 2011.

As these rate caps expire, consumers are getting a taste of what wholesale-market-driven prices are like.  In theory this is not much different from gas for our cars.  The market sets a wholesale price, and retailers offer products based on primarily those wholesale costs.  When prices go really high, people buy smaller cars or hybrids, or they drive less.

The same is true with electricity:  we need to consume less.  Demand continues to grow, and adding supply options in the northeast corridor is difficult , with ‘not-in-my-backyard’ [NIMBY] issues greater due primarily to population density.  Load control and other energy-saving products will grow once customers are more aware of the dynamics of the electricity wholesale markets.

Creativity in solving energy challenges is critical.  Imagine if Bill Gates stuck with his original statement that computers would never need more than 640kb of memory?!  Or if pre-1980 AT&T and Ma Bell’s were charged with deploying nationwide cellular coverage?  We most likely have no idea what the greatest energy saving invention will be in 10 years.   We are more likely to get that invention – and help solve our energy issues – with more cooks in the kitchen, not less.  Relying on a single regulated company – the incumbent default utility – to solve these problems is not the path with the most options.  Instead, let’s have a vibrant, alive, competitive marketplace of energy providers with access to the data and controls needed to offer products that give customers the incentives necessary to change their usage patterns.

Over the next few years we will see if PA’s hedged bet leaving the utility as the default energy provider was the right move.  The proof is in the pudding:  a wide variety of energy providers, products and services to help consumers manage their energy and energy costs, or most consumers on default service from the utility, with state- or utility-driven solutions to energy challenges?

I prefer my pudding with the flavor that comes with lots choices and options, please.

Over the next 3 years ending 2012, nearly all TX meters will replaced by smart meters – meters capable of both (a) recording data at 15-minute intervals to give a detailed picture of energy consumption, and (b) enabling Home Area Network HAN capabilities that move energy controls into the 21st Century.  HAN’s will enable load control and other features state-wide using a single standard.

As with any large deployment, features are being deployed gradually.  On 2/1, REP’s will be able to:

• Get interval data for ESIID’s that have smart meters.  This will most likely be automated through existing usage data feeds.  Contact ESG for more info.
• Establish administrative users that can go online and add ESIID’s, view ESIID usage info, request ad hoc usage information and more
• Establish and manage HAN devices, and control basic features of HAN devices

In Q4 2010, REP’s can throw away their Letter of Authorization LOA devices used to qualify new prospects, and turn on an SMT tool that will enable them to get detailed interval profiles with only the ESIID and the Meter #.

Demand-side management, time-of-use pricing and much much more are in our future, limited only by the imagination of the REP’s and energy providers.  Get out your crayons, and don’t bother staying inside the lines, because the lines are yet to be drawn!

Instead of boxes delivered, the indicator of growth for this industry could be the number of EDI transactions (and non-EDI) delivered between utilities and their retail supplier trading partners. If this is an accurate indicator (and I am certain it is), the retail energy industry has been growing at a very favorable rate. In this example, ESG resembles FedEx; and this “EDI courier” has seen significant growth, for many years, in the number of EDI transactions we manage on a monthly basis. By the end of this summer, ESG will manage data for over 4 million meters per month in the US. Our meter volumes increase nearly every month and it is not unusual to see increases of 100,000 meters or more per month. ESG is active in every deregulated, retail electric market and most deregulated gas markets. We’ve seen the greatest growth in TX, NY, CT and OH, and we are looking forward to significant growth in PA with the removal of price caps behind a few of the utilities.

Other great indicators of growth in the retail energy industry are the large number of new retail suppliers entering the industry for the first time, and  existing clients entering new markets. Here it is almost 9 years after TX first opened its doors to retail electric competition and there are still many new suppliers entering the market and adding value. NY and CT are seeing many new gas and electric suppliers entering their markets as well.

After the demise of the Virginia retail electric market, more challenges in MI, issues in MD and a few other close calls in other markets, many people active in retail energy were concerned about where the industry was heading and where we would see growth. From what we’ve seen here at ESG, growth in this industry is alive and well. So fear not, there is plenty of opportunity out there to enter new markets and grow your retail energy business.

Congratulations to all those retail suppliers out there enjoying this growth! Now, if we could only get California to open its markets. . .

Mandatory Hourly Pricing [MHP]

• MHP for accounts 1000kw – 1499kw total peak demand (not just one meter) begins Nov 2009, meters installed by Apr 2009 (300 customers)
• MHP for accounts 500kw – 999kw begins May 2011, meters installed by Apr 2010 (1400 customers)

PowerMove Expansion

• Allows Customer to choose supplier when they enroll, getting 7% savings immediately
• Expect Jun 2010 implementation pending PSC approval

Automated EDI Testing

• New automated testing process will reduce testing timeline to 10 days
• Web-based testing interface for trading partners; see progress; interact; email updates when files posted, etc.
• Implementation Jan 2010

Miscellaneous

• 600k accounts switched (3.1M total)
• 60 ESCO’s, 15 electric only, 28 gas only, 15 E&G

Summary:  FirstEnergy-UCBRR-Summary-20090917

Links:

• Website, Rate Form for Met-Ed/Penelec:  http://www.firstenergycorp.com/supplierservices/files/Supplier_Registration/Ratedesignform%20rev%206%2021%2007.xls
• Website, Rate form for Penn Power:  http://www.firstenergycorp.com/supplierservices/files/Rates_and_EDI/suprates.pdf

• PA markets Duquesne, PennElec, MetEd, Allegheny Power and Penn Power all provide Rate Ready already.
• Most expect the new RR solution to look alot like the existing RR solutions already in place in PA
• PPL and PECO started with Bill-Ready in 1999
• To join the fray, contact Bruce Bolbat at PPL
• A report is due to the PA PUC by 11/9/09
• ESG is helping to coordinate Suppliers in this effort.  If interested, contact George Behr at ESG

PJM IG’s 2009-08-08

The next flight after that has a registration deadline of 11/6/09, with production projected 1/25/10.

Other interesting PPL Facts:

• There are 7000MW in PJM’s PPL zone
• All meters in PPL are interval:  1800 Itron MV90 15-minute interval and 1,400,000 Aclara TNS 60-minute interval.
• 1,200,000 Resi Customers, 200,000 Small C&I, 1,200 Large C&I
• Resi price for 2010: 10.298 per kWh; Small C&I: 10.384 per kWh
• SC&I prices going up 45% in 2010
• PPL’s Energy Analyzer let’s all customers see their interval data, and share that data with 3rd parties (suppliers!)

Resources:

• 2009 Test Schedule

• Mayor’s proposal to charge the sales tax on ESCo charges and raise $83 million dollars was passed by the City Council in June
• New taxes for NYC go to the state legislature as well, known as a ‘home rule’.

KED

• In KED, ESCo’s have to calculate a 4 1/2% tax on charges and submit them for bill presentation as a separate line item.
• In KED POR program, KED purchases this tax along with the rest of charges.
• In KED POR, ESCo’s remit full tax amount to proper taxing authority.

ConEd

• In ConEd, the new tax is for both gas and electric.
• As in the past, Con Ed will buy the new NYC local taxes receivables as part of POR
• In ConEd, ESCO’s need to send in an 814 Change file to change the tax rate (use AMT*9M)
• As in the past, the ESCO is responsible for reporting and paying taxes to appropriate tax agency.

Miscellaneous

• If the meter is read on or after August 1, 2009, and the number of days from August 1, 2009, to the date of the meter reading is more than half the total number of days covered by the bill, report sales of these services at the new residential rate of 4½% or the nonresidential rate of 8 7/8%.  If the meter is read on or after August 1, 2009, and the number of days from August 1, 2009, to the date of the meter reading is more than half the total number of days covered by the bill, any sales of the services of transporting, transmitting, distributing, or delivering gas or electricity, even if made by someone other than the vendor of the gas or electricity, must be reported at the new rate of 4½%.

Related Resources:

PSC Notice: http://www.tax.state.ny.us/pdf/notices/n09_12.pdf