BEYOND THE STANDARD OFFER: DEVELOPING THE RETAIL ELECTRIC MARKET IN MASSASHUSETTS. RETAIL AGGREGATION AND AUCTION OF RESIDENTIAL AND SMALL COMMERCIAL AND INDUSTRIAL CUSTOMERS INTO THE COMPETITIVE MARKET

ELIGIBILITY Suppliers: –Must be licensed by the DTE –Must agree to license conditions/code of practice obligations as promulgated by the DTE –Must provide credit support to the ISO ISO has an existing credit support mechanism which elucidates a set of standards for suppliers. DTE would be interfaced with ISO process and would be required to take certain actions if supplier falls below ISO credit standards –Must ensure their systems interface with utility (a/k/a EDI testing) Monthly reconciliation is done through EDI This represents a minimal cost to suppliers –Retail Affiliates of the Utility may participate However, if a retail affiliate of the utility participates in the auction, certain precautions against that retail affiliate having an unfair advantage over other suppliers need to be taken. Possibilities could include: 1) requiring any IOU that elects to establish a retail affiliate to structurally separate; 2) limiting the number of customers an affiliate can win in their service territory; and/or 3) requiring a neutral third party to conduct the auction. Customers: –Small Commercial and Industrial (C+I) –All residential customers who do not opt out

THE AGGREGATION Prospective aggregation –will not disrupt utilities existing procurement contracts. Pre-qualification of bidders Opt out provision –Each small C+I and residential customer will be given the opportunity to opt out. Blocks –All of the small C+I and residential customers currently on standard offer and default service will be pooled and then divided into blocks, with a minimum of 75,000 and a maximum of 150,000 customers. This provides flexibility to the DTE, the agency charged with conducting the auction.

DESCENDING CLOCK AUCTION The proposal calls for a series of descending clock auctions of Standard Offer and Default customers into a competitive retail market. Winners of each descending clock auction would provide “Basic Electric Service” (BES) for a period of three years to a block of customers. Here are the highlights of the proposed auction process: –All standard offer and default customers in each service territory will be divided into several groups of between 75,000 and 150,000 customers. Competitive suppliers (including the utility) will then have the ability to bid for each group pursuant to a descending clock auction. The winner of each auction will provide BES at a fixed price over three years (either set at one price or a schedule of prices). - One competitive retail service provider would be prohibited from winning more than a maximum of 500,000 customers, thereby ensuring that there will be a minimum of 4 CRSPs operating in the market. –Customers will be given the opportunity to “opt-out” of the market without penalty and procure their own service from another CRSP or revert back to Last Resort Service.

LAST RESORT SERVICE Opt Out Customers –Incumbent utilities would be charged with providing Last Resort Service (LRS) to any customers within their service territory who opt out of the aggregation. –The supplier who initially won the auction to provide the commodity to the customer would instead supply the commodity to the incumbent utility, which would in turn supply it to the customer for the duration of the term. However, those who elect to opt out and revert to LRS may at anytime during the initial period procure their supply from another competitive retail service provider. New Customers –New customers (i.e., those who sign up for service after the effective date of the Act) will be allocated by the utility to suppliers doing business within their respective service territory in a pro-rata fashion.

METERING, BILLING, AND INFORMATION SERVICES MBIS would remain with the incumbent utilities. –The DTE would be charged with promulgating regulations relative to the ability of retailers to adequately “brand” their product on the bill produced by the utility. The DTE would be charged with opening a docket and conducting an evidentiary proceeding as to the future of MBIS. The DTE shall then report its findings to the General Court. In exchange for removing the customer option for dual billing, the utilities would be required to purchase the receivables of the competitive suppliers using a discount that adjusts annually designed to reconcile the amount of bad debt. –Bad debt shall still be the sole responsibility of the supplier, but this provides suppliers with a certain level of continuity.

POST BES At the end of the initial 3-year term of BES a new term would begin for the remaining customers (i.e., those customer who did not opt out) at a price proposed by the supplier and approved by the DTE. At the end of the second term, customers transition into the open retail market.

CONSUMER PROTECTION This plan is a “controlled slamming.” If no legislation is enacted prior to the end of the 7-year standard offer period, ratepayers will essentially be “slammed” because they will be taken off of standard offer service when it expires. –This can be compared to a statewide extension of the Cape Light Compact. –Also, as MBIS will remain with the utility all existing consumer protections will remain in place. –The DTE will be charged with promulgating regulations relative to a code of conduct for licensed suppliers that will serve as an additional layer of consumer protection. –Because of the design of the aggregation/auction process as well as both existing and future consumer protections, the possibility of “redlining” low-income and/or high risk ratepayers is virtually eliminated. Finally, the most important consumer protection arising as a result of this proposal would be the stability in prices for the next three years. –By having a 3-year fixed price, followed by another 3-year fixed price, the risk instability in such areas as fuel costs is transferred from the ratepayers to the retailers.

MARKET OVERSIGHT Supplier Performance –DTE will be empowered to levy fines, revoke licenses and call in bonds or letters of credit. Material Customer Impact/Market Development –DTE will be empowered to periodically review market development DTE will be empowered to make adjustments to market structure if circumstances warrant.

ADDITIONAL ISSUES PRESENTED TO THE COMMITTEE CONCERNING CHAPTER 164 OF THE ACTS OF 1997

AIR REGULATIONS Proposals to statutorily change the air regulations imposed by the Swift Administration.

RENEWABLE ENERGY Bifurcation of Renewables into two categories—existing and new. Including existing Hydro as a renewable energy. Siting issues. Massachusetts Renewable Energy Trust Fund –Use of trust funds for the state purchase of renewable energy for its facilities and/or the retrofitting of state facilities with renewable attributes. –Devotion of resources to a public education campaign in order to increase demand for, and supply of, renewable attributes. Waste-to-Energy: The importance of considering –The federal government’s recognition of WTE as a renewable energy.

DISTRIBUTED GENERATION The encouragement of distributed generation –Can lead to a reduction in congestion (if sited strategically) which will increase the overall reliability of the transmission grid; –Can lead to economic development. Efforts at encouraging distributed generation should include a review of the requirements for interconnection agreements as well as a review of standby rates. –Interconnection agreements ought to be uniform –The DTE currently has an open docket on standby rates slated for decision in August. –Net Metering

ENERGY EFFICIENCY In fiscal year 2005, it is expected that $140 million will be collected from ratepayers pursuant to the EE charge. –Administration wants to fund the operating budget of DOER (approx. $1 million) with EE funds; –The use of EE funds for smart metering pilot programs. Using EE funds to promote greater consumer use of energy efficient appliances. –Extension of the EE charge in perpetuity.

CONSUMER ISSUES Increase the eligibility criteria for the low income electricity discount from 175% of the Federal Poverty level to 200%.

LABOR ISSUES Staffing levels. Inspection and Maintenance standards. Greater authority to DTE for audits. Require Companies to use only their employees to mark out underground utility lines.