Re: PennFuture's E-cubed ,
 Congratulations Kathleen and Peter.  This ought to make this week's ARM=20
meeting, well, sort of interesting.=20

Viva New Power!

Best,
Jeff



=09"PennFuture" <pennfuture@pennfuture.org>
=0911/03/2000 03:48 PM
=09Please respond to "PennFuture"
=09=09=20
=09=09 To: <Undisclosed-Recipient:@mailman.enron.com;>
=09=09 cc:=20
=09=09 Subject: PennFuture's E-cubed

PennFuture's E-cubed is a commentary biweekly email publication concerning=
=20
the current themes and trends in the energy market.=20
=20
November 3, 2000
Vol. 2, No. 22
=20
Pennsylvania's First Successful CDS Auction
=20
An important new regulatory skirmish has broken out before the Pennsylvania=
=20
Public Utility Commission (PUC) over which company has won the right to=20
provide default generation service to 300,000 customers of PECO Energy, an=
=20
Exelon Company. This skirmish is actually good news for consumers and is th=
e=20
fruit of the 1998 PECO Energy restructuring settlement agreement, a landmar=
k=20
document that ended a ferocious regulatory war when all combatants signed i=
t.=20
=20
The =01&peace treaty=018 includes a requirement that PECO Energy bid out de=
fault=20
service for 20% of its customers, and PECO has done so. Green Mountain Ener=
gy=20
Company is now challenging PECO Energy=01,s decision that New Power won the=
=20
auction to provide the settlement=01,s mandated default service.=20
=20
Both Green Mountain and New Power are offering those 300,000 consumers smal=
l=20
rate reductions compared to customers receiving default service from PECO,=
=20
and more electricity generated from renewable energy resources. Specificall=
y,=20
New Power and Green Mountain are offering generation service to Rate R=20
residential customers for approximately 5.54 cents per kilowatt-hour. That=
=20
offer is 3.11 cents per kilowatt-hour less than PECO Energy=01,s unbundled=
=20
generation and transmission rate of 8.65 cents per kilowatt-hour and 0.11=
=20
cents per kilowatt-hour less than the shopping credit of 5.65.=20
=20
The consumer savings that these offers represent is masked or reduced by th=
e=20
stranded cost payments that consumers must pay PECO Energy. Indeed, were it=
=20
not for stranded cost payments, the New Power and Green Mountain offers wou=
ld=20
reduce total bills by about 3.11 cents per kilowatt-hour, or 20%.=20
=20
The dispute between New Power and Green Mountain is noteworthy because it=
=20
proves that companies will compete vigorously to provide default service if=
=20
shopping credits and lengths of contracts are set at reasonable levels. It=
=20
also shows that renewable energy portfolio standards can be met economicall=
y.=20
Finally, the result of this case will switch more customers to competitive=
=20
suppliers in one day than the total number who switched in California over =
a=20
period of nearly three years.=20
=20
When the PUC anoints New Power or Green Mountain as the winner, if all=20
299,300 consumers opt to stay with the CDS provider, the total number of=20
customers in Pennsylvania that will be served by a competitive supplier wil=
l=20
jump to more than 850,000. Of this total, 504,000 will be residential=20
customers of PECO, a number equal to 37% of the PECO residential class.
=20
CDS Background: In Pennsylvania, there must always be a =01&default=018 sup=
plier or=20
=01&provider of last resort=018 to assure that service is always available =
to all=20
customers. The incumbent utility is the default supplier, unless the PUC=20
decides otherwise. The default supplier must provide generation service to=
=20
customers who do not have a competitive supplier either because they chose=
=20
not to shop or did not find a willing supplier at an acceptable price. The=
=20
PECO Restructuring Case Settlement initially defined CDS service in paragra=
ph=20
38:
=20
=01&On January 1, 2001, 20% of all of PECO=01,s residential customers -- de=
termined=20
by random selection, including low-income and inability-to-pay customers, a=
nd=20
without regard to whether such customers are obtaining generation service=
=20
from an EGS -- shall be assigned to a provider of last resort-default=20
supplier other than PECO that will be selected on the basis of a=20
Commission-approved energy and capacity market price bidding process. This=
=20
service shall be referred to as Competitive Default Service (=01&CDS=018).=
=018
=20
The same approach was used in the other Settlements in the GPU, PPL and APS=
=20
restructuring cases. CDS reflects an effort to assure that there is at leas=
t=20
one other large competitor in each market. CDS also has a renewable portfol=
io=20
standard (RPS), even though there is no RPS for regulated utilities in=20
Pennsylvania. The winning bidder must supply:=20
=20
=01&=01(2.0% of its offered energy supply for CDS service from renewable re=
sources=20
of solar, wind, sustainable biomass (including landfill gas but excluding=
=20
incineration of Municipal Solid Waste), geothermal or ocean power. The=20
renewable energy increment shall increase by annual increments of 0.5%=20
thereafter.=018
=20
This increasing renewable requirement continues indefinitely, meaning that =
in=20
year four of the CDS there will be a 3.5% renewable requirement, 4% in year=
=20
five and so on. This is significant, as each extra percent of renewable=20
energy used to serve the 299,300 customer block prevents approximately 950=
=20
tons of NOx, 3200 tons of SO2, and 390,000 tons of CO2 from being emitted b=
y=20
fossil fuel burning power plants.
=20
PECO=01,s CDS RFP: Importantly, the PECO/Unicom merger case modified the CD=
S=20
bidding process as established by the 1998 settlement. Of particular note,=
=20
the revisions eliminated the =01&customer care=018 functions from CDS, made=
 the=20
contract three years long to help spread out return of start-up costs, and=
=20
instituted several rounds of selection in the event that prior efforts=20
yielded no successful CDS contract.=20
=20
PECO issued its initial RFP for CDS on April 6, 2000, and Shell Energy=20
Services submitted the only bid. However, the PUC rejected the bid as=20
non-conforming and denied Shell=01,s Petition for Reconsideration of its=20
decision. Pursuant to the modifications in the merger settlement, PECO=20
entered into bilateral negotiations based on an August 24, 2000 RFP.=20
=20
Three suppliers submitted conforming bids, and PECO selected New Power as t=
he=20
winner on October 18, 2000. New Power is the new competitive supplier=20
actively marketing residential and small commercial customers in the PECO=
=20
service territory and is backed by Enron, AOL, and IBM.=20
=20
PECO and New Power negotiated a complete contract that is before the PUC fo=
r=20
approval on November 9, 2000. Under the proposal, PECO and New Power expand=
ed=20
the size of the CDS requirement to include 22% (299,300) of non-shopping=20
residential customers instead of 20% of all residential customers, whether=
=20
shopping or not. This change was designed to implement paragraph 39 of the=
=20
Restructuring Settlement, requiring adjustments to the numbers assigned to=
=20
CDS in order to have 35% of all PECO residential and commercial customers=
=20
obtaining competitive generation as of January 1, 2001. There also will be =
a=20
second round of assignment of non-shopping customers as of October 15, 2002=
=20
if New Power is providing CDS to fewer than 20% of all PECO residential=20
customers
=20
New Power electricity will be 2% renewable in 2001, 2.5% renewable in 2002,=
=20
and 3% renewable in 2003 as required, but does not include a commitment to=
=20
exceed the requirements or provide cleaner power for the non-renewable=20
portion of the product.=20
=20
The price for New Power=01,s CDS for Rate R customers would be 2.02% below =
the=20
shopping credit, while residential heating customers on Rate RH would pay=
=20
1.02% less than their shopping credit. For a Rate R customer, this would me=
an=20
that overall rates would fall .8% (as energy and transmission falls from 5.=
65=20
to 5.54); for Rate RH rates would fall .44%. Customers assigned to CDS may=
=20
still choose any competitive supplier, or opt out and retain default servic=
e=20
from PECO without penalty or charge. New Power will be able to offer its fu=
ll=20
slate of energy and non-energy related products to these customers.
=20
Green Mountain asserts that approval of the PECO/New Power contract is =01&=
not=20
in the public interest,=018 arguing that PECO ignored Green Mountain=01,s o=
ffer=20
that included CDS pricing 2% below the shopping credit for all residential=
=20
customers, including those on residential heating or off-peak service. Like=
=20
the New Power proposal, the Green Mountain proposal would lower Rate R and =
RH=20
rates .8% and .44%, respectively. Green Mountain asserts that the New Power=
=20
rate cut for Rate R is only 1.83%, and not 2% and argues that its product i=
s=20
better for the environment because the non-renewable portion of the product=
=20
would come from natural gas and hydro instead of system power generated=20
primarily from coal and nuclear fuels. If not declared the winning bidder,=
=20
Green Mountain proposes in the alternative that both they and New Power=20
receive CDS contracts.
=20
In response, PECO states that all three bidders had the opportunity to subm=
it=20
revised bids and that the Green Mountain revised bid was not submitted unti=
l=20
October 12, 2000, 13 days after the deadline and nine days after the=20
selection of New Power as the winning bidder.=20
=20
The PUC will sort out the facts and arguments on November 9. Some think tha=
t=20
the PUC may very well split the 300,000 customer block between Green Mounta=
in=20
and New Power.=20
=20
Whatever the result, customers in the Philadelphia area should receive yet=
=20
another small price reduction, more renewable energy, and the opportunity f=
or=20
a more competitive electricity market.=20

E-cubed is available for reprint in newspapers and other publications.=20
Authors are available for print or broadcast.=20

Support E-cubed by becoming a member of PennFuture =01* visit our secure on=
line=20
membership page at www.pennfuture.org by clicking on =01&Support Our Work.=
=018
=20
PennFuture, with offices in Harrisburg, Philadelphia and Pittsburgh, is a=
=20
statewide public interest membership organization, which advances policies =
to=20
protect and improve the state=01,s environment and economy. PennFuture=01,s=
=20
activities include litigating cases before regulatory bodies and in local,=
=20
state and federal courts, advocating and advancing legislative action on a=
=20
state and federal level, public education and assisting citizens in public=
=20
advocacy.=20
=20
We hope you found this informative and interesting. However, if you would=
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prefer not to receive future issues, please reply to this email and type=20
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kathleen.magruder@enron.com, peter.bray@enron.com, susan.mara@enron.com, 