Massachusetts ElectricRestructuring Roundtable

June 21, 2002

Best Practice Design for Competitive Electric Retail Markets

Building on the 1997 Landmark MA Law

• 1997 legislative initiative uncoupled generation from the integrated utility company – instrumental in saving Massachusetts customers over $2 billion.

• This proposal suggests that the logical next step would uncouple the delivery lines portion of the utility business from the retailing business.

• Best practice research indicates that this unbundling is essential to establishing viable retail competition in former monopoly markets.

• With the end of regulated pricing near, the time is now appropriate to complete the unbundling of regulated and monopoly functions.

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Co. A Co. B Co. C

Revised Market Structure

Customer Service(retail service

providers)

Competitive

Transmission & Distribution

Regulated

Generation

Competitive

Customers

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Reliable Delivery Service

Transmission and Distribution business should be focused on reliable delivery service.

Key Responsibilities:

• Design, build, maintain electric infrastructure

• Repair poles and wires after customer outages

• Provide accurate metering consumption data to retail provider

• Register customers’ choice of retail provider

What Could Be Different:• “Utility” exits competitive businesses

– Primary focus on reliable service to customers and retail provider

– Avoids many code-of-conduct and cross-subsidy issues– Avoids business uncertainty of regulated prices competing in the

marketplace• Utility bills retail provider for T&D service at regulated rates 5

Retail Service Providers will focus on customer needs and product and service innovation

• Retail companies need the option to bill the customer, operate phone centers, handle customer inquiries.

• Retail companies will develop the relationship with the customer so as to offer more products and services and understand customer needs.

• Unbundling envisions that utilities would create their own affiliated RSP that provides SOS service … at a minimum

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Default Service customers to be transitioned to competitive RSP in January 2004

• DTE to select RSP based on bids received for service price through February 2005

• RSPs that win bidding continue service to those customers at market based prices beginning March 2005

• If a customer prefers not to receive service from the chosen RSP, the customer will be free to choose another RSP

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Consumer Protections are critical to a competitive marketplace

• Extension of existing consumer protections

• Re-tooled retail marketplace will attract more competitors, bringing the competition and better service originally envisioned

• Low-income discounts “passed through” to ensure all RSPs can offer same discounts

• SOLR service to ensure customers will have power in the event an RSP fails to provide service

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Supplier of Last Resort service provided competitively by RSPs

• SOLR service to ensure customers will have power in the event an RSP fails to provide service

• RSPs bid to provide SOLR service with direct customer contact like other RSPs

• If no RSPs bid for to provide the service, the DTE can select an RSP and negotiate the terms of the service

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DisCos file unbundling plan with DTE

March 2003

Timeline of Proposal Implementation Steps

March 2005

SOS ends, customers; move to competitive pricing

October 2003

DTE selects RSPs to serve Default Customers

DTE selects SOLR RSPs

January 2004

Unbundling implemented, SOS transferred to affiliate RSPs

Default customers served by RSPs

SOLR service begins

March 2003

DTE sets rules to select RSP for Default Customers

DTE sets rules for SOLR service

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Review

• This proposal focuses each type of company on its core competency.

• Distribution companies’ primary purpose will be to ensure reliability and integrity of delivery system.

• Retail companies operating under this proposal must exceed customer expectations to succeed.

• Choice will bring viable options for residential and small business customers. Retail companies will competitively strive to offer new services.

• Customers will continue to receive one bill from their current provider or a newly selected RSP.

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