Congratulations Kathleen and Peter.  This ought to make this week's ARM 
meeting, well, sort of interesting. 

Viva New Power!

Best,
Jeff



	"PennFuture" <pennfuture@pennfuture.org>
	11/03/2000 03:48 PM
	Please respond to "PennFuture"
		 
		 To: <Undisclosed-Recipient:@mailman.enron.com;>
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		 Subject: PennFuture's E-cubed

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

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