Message-ID: <17035300.1075843839098.JavaMail.evans@thyme> Date: Thu, 4 Jan 2001 11:29:00 -0800 (PST) From: jeff.dasovich@enron.com To: kari.dohn@gov.ca.gov Subject: PennFuture's E-cubed -- Price, Policy and Misperception Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Jeff Dasovich X-To: Kari.Dohn@GOV.CA.GOV X-cc: X-bcc: X-Folder: \Jeff_Dasovich_June2001\Notes Folders\Sent X-Origin: DASOVICH-J X-FileName: jdasovic.nsf Greetings, Kari. =20 Today's installment includes: Background on Nord Pool Information on the status of de-regulation in Pennsylvania. The rumors regarding securitization of utilities' power purchase costs had = a=20 very positive effect on the utilities' stock today. Congratulations. Ther= e=20 is conflicting information floating around, though. =20 Some wires stories say that a state senator will sponsor a securitization= =20 bill. Others say that it will be the Governor's bill. Is securitization= =20 legislation something that the Governor intends to sponsor/support?=20 Though there are clearly some challenges to securitization, we think it=20 offers a promising option. Hope the information is useful. Best, Jeff ----- Forwarded by Jeff Dasovich/NA/Enron on 01/04/2001 07:16 PM ----- =09"PennFuture" =0901/04/2001 11:12 AM =09Please respond to "PennFuture" =09=09=20 =09=09 To: =09=09 cc:=20 =09=09 Subject: PennFuture's E-cubed -- Price, Policy and Misperception PennFuture's E-cubed is a commentary biweekly email publication concerning= =20 the current themes and trends in the energy market.=20 ? January 4, 2001Vol. 3, No. 1 ? Price, Policy and Misperception ? The ringing in of 2001 marks the completion of the fourth year since =20 Pennsylvania=01,s electricity competition law went into effect on January 1= ,=20 1997, and the second year since Pennsylvania=01,s retail market was fully= =20 opened to customer choice on January 1, 1999. But nationwide, while=20 reliability, environmental performance, and assistance for low-income=20 customers are crucial factors, the price of power has alone become the mai= n=20 standard for judging the success or failure of competitive transition=20 policies. Near hysteria about prices is yet another fallout of the=20 California mess where rates are a daily nightmare for consumers.=20 ? In an effort to broaden electricity policy discussion beyond the myopic =20 focus on California, we note that competitive residential retail prices of = =20 electricity in Pennsylvania this New Year are considerably below what=20 customers were paying for generation and transmission service or embedded= =20 generation on January 1, 1997. If you doubt it, compare columns B and D=20 below. Just as interestingly, competitive prices for 100% renewable energy= =20 products are well less than what customers of Duquesne Light and PECO Ener= gy=20 paid for power generated from mainly coal and nuclear prior to competition= =20 (columns C and D). ? Comparison of Residential Unbundled Embedded Generation to Retail Power =20 Prices (in cents/kWh)A. 2000 Shopping CreditB. Lowest Retail PriceC. 100%= =20 Green Power Prices?D. Embedded Generation & =20 Transmission?????????????????????? A.??????? B.????? C.??????? =20 D.Duquesne?????? 4.80??? 4.60??? 6.49??? 8.75GPU/Met-Ed?? 4.53??? 4.60???= =20 7.09??? 5.70GPU/Penelec? 4.53??? 4.50??? 7.09??? 5.40PECO???????????? = =20 5.65??? 4.65??? 6.37??? 8.65PPL??????????????? 4.61??? 4.30??? 7.09??? = =20 6.26Allegheny??????? 3.24??? 5.20??? 6.49??? 5.30Note: 2001 shopping=20 credits will be moderately higher in some cases. ? In most parts of the Commonwealth, current competitive retail prices for = =20 residential customers are 0.90 to 3.15 cents per kilowatt-hour less than=20 what customers were paying for the same generation and transmission servic= e=20 prior to competition. As a result of stranded cost charges that utilities= =20 are being allowed to collect, these substantial competitive savings are no= t=20 fully passed on to consumers. ? In fact, were it not for stranded cost charges, Pennsylvania=01,s residenti= al =20 customers would have had their total rates (including distribution and =20 transition rates) decline by about 20% in 2000. Generation rates would have= =20 declined by as much as 40%. These huge price reductions are real but will= =20 not fully reach customers during the transition period when utilities are= =20 allowed to collect stranded costs. ? Competitive retail prices are also in most cases less than Pennsylvania=01,= s =20 default rates or shopping credits. This is important and encouraging,=20 because Pennsylvania=01,s current residential default rates or shopping cr= edits=20 are in every case much less than what customers were paying for generation= =20 service at the start of the competitive transition. Indeed, current defaul= t=20 rates are about one to three cents per kilowatt-hour less than residential= =20 customers were paying for the same service from their local utility prior = to=20 competition. ? The California fiasco has meant a lot of discussion about the price of =20 electricity, but it has not meant a lot of understanding of sensible=20 competitive policies=01, potential impact on retail prices. Instead, a gre= at=20 deal of reporting reflects understandable misconception of basic price=20 benchmarks. For example, very few stories identify accurately or even at a= ll=20 what customers were paying for generation service prior to competition (th= e=20 pre-competition embedded generation rate of the incumbent utility). This= =20 failing can be traced to the fact that states have not prominently made th= is=20 data available. ? Worse yet, many press articles mistakenly assume the default rate or the = =20 shopping credit is equal to what customers were paying the local utility fo= r =20 generation service prior to competition, and report that competition will= =20 lead to price shock for customers if market prices exceed present default= =20 rates. But this dramatic warning is typically wrong. ? The press=01, misunderstanding hides an important fact: current default ra= tes=20 or shopping credits are nearly always much less than what customers were = =20 paying for generation service prior to competition. Total rates after the = =20 transition to competition will not be greater than they were prior to =20 competition, unless competitive retail rates exceed the utility=01,s =20 pre-competition embedded generation rate.=20 ? Consequently, if competitive prices are higher than current default rates = =20 but lower than a utility=01,s pre-competition embedded generation rate,=20 consumers will have lower total rates once stranded cost charges are remov= ed=20 and the transition period expires. That is, they will if a state creates a= =20 genuinely competitive retail market that pulls through competitive prices. E-cubed is available for reprint in newspapers and other publications. =20 Authors are available for print or broadcast. Support E-cubed by becoming a= =20 member of PennFuture =01* visit our secure online membership page at=20 www.pennfuture.org by clicking on =01&Support Our Work.=018?PennFuture, wi= th=20 offices in Harrisburg, Philadelphia and Pittsburgh, is a statewide public= =20 interest membership organization, which advances policies to protect and= =20 improve the state=01,s environment and economy. PennFuture=01,s activities= include=20 litigating cases before regulatory bodies and in local, state and federal= =20 courts, advocating and advancing legislative action on a state and federal= =20 level, public education and assisting citizens in public advocacy. ?We hop= e=20 you found this informative and interesting. However, if you would prefer n= ot=20 to receive future issues, please reply to this email and type =01&unsubscr= ibe=018=20 in the subject line. - Vol3No1_10301.doc