Lessons Learned: Restructuring U.S. Energy and Telecommunications Markets Craig G. Goodman President 202-333-3288 [email protected] .

Lessons Learned: Restructuring U.S.

Energy and Telecommunications

Markets

Lessons Learned: Restructuring U.S.

Energy and Telecommunications

Markets

Craig G. GoodmanCraig G. GoodmanPresident

202-333-3288

[email protected]

www.energymarketers.com

Institute of Public UtilitiesEvaluating Dislocations in the

Restructured Energy MarketplaceOctober 29, 2001

Williamsburg, Virginia

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National Energy Marketers Association

OverviewNational Energy Marketers Association

Overview

Who is NEM? Who is NEM? Marketers of Gas and ElectricityMarketers of Gas and Electricity Marketers of Energy-Related Products,Marketers of Energy-Related Products, Marketers of Energy-Related Services, Marketers of Energy-Related Services, Marketers of Energy-Related Information, and Marketers of Energy-Related Information, and Marketers of Energy-Related TechnologiesMarketers of Energy-Related Technologies

What Does NEMWhat Does NEM Do?Do? State and Federal Regulatory Commissions, Legislators State and Federal Regulatory Commissions, Legislators Consumer Representatives and Utilities Consumer Representatives and Utilities Fair and meaningful ways to implement competitive Fair and meaningful ways to implement competitive

restructuring of markets for natural gas and electricityrestructuring of markets for natural gas and electricity . . s,

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National Energy Marketers AssociationOverview

National Energy Marketers AssociationOverview

Who is NEM? Who is NEM? Small Regional MarketersSmall Regional Marketers Large Traditional International Wholesale and Retail Large Traditional International Wholesale and Retail

Energy Suppliers (as well as wind and solar power)Energy Suppliers (as well as wind and solar power) Billing and Advanced Metering FirmsBilling and Advanced Metering Firms Internet Energy ProvidersInternet Energy Providers Energy-Related Software DevelopersEnergy-Related Software Developers Risk ManagersRisk Managers Energy Brokerage FirmsEnergy Brokerage Firms Information Technology ProvidersInformation Technology Providers Suppliers of Distributed GenerationSuppliers of Distributed Generation

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Restructuring LessonsRestructuring Lessons

““8 Lessons From the Telecom Mess”8 Lessons From the Telecom Mess” - - Steve Steve Rosenbush & Peter Elstrom, Newsweek, August 13, 2001Rosenbush & Peter Elstrom, Newsweek, August 13, 2001 Market Structure MaladiesMarket Structure Maladies Competitors BewareCompetitors Beware Faster ConnectionsFaster Connections Access to CapacityAccess to Capacity Regulatory UncertaintyRegulatory Uncertainty Merger ReviewMerger Review New Products and Services are Key to Attracting New Products and Services are Key to Attracting

ConsumersConsumers Legacy Systems and Technologies Legacy Systems and Technologies

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Market Structure Maladies

Market Structure Maladies

Unless Big Changes are Made, Most Consumers Unless Big Changes are Made, Most Consumers Will Not See the Benefits of Competition in Will Not See the Benefits of Competition in

Local Phone/Retail EnergyLocal Phone/Retail Energy Service Service

TelecomTelecom ““Eliminate subsidies for all but the truly needy, and let the Bells raise basic Eliminate subsidies for all but the truly needy, and let the Bells raise basic

phone rates. That will encourage competitors to enter the market, phone rates. That will encourage competitors to enter the market, bringing prices back down while improving phone service.”bringing prices back down while improving phone service.”

EnergyEnergy Fully unbundle utilities rates and give consumers shopping credits equal to Fully unbundle utilities rates and give consumers shopping credits equal to

the utilities fully embedded coststhe utilities fully embedded costs Eliminate cross-subsidies between monopoly and competitive servicesEliminate cross-subsidies between monopoly and competitive services Default service pricing must encompass the full energy supply and Default service pricing must encompass the full energy supply and

commercial costs of serving retail loadcommercial costs of serving retail load

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The The Bell/EnergyBell/Energy Utilities are More Effective at Utilities are More Effective at Stomping Out Local Competition Than Stomping Out Local Competition Than

Anyone ExpectedAnyone ExpectedTelecomTelecom ““Give regulators the tools they need to force the Bells to open Give regulators the tools they need to force the Bells to open

their markets to competition.”their markets to competition.”

EnergyEnergy State Action DefenseState Action Defense Codes of ConductCodes of Conduct Provider of Last ResortProvider of Last Resort Fully Unbundle Rates Using Embedded CostsFully Unbundle Rates Using Embedded Costs

Competitors BewareCompetitors Beware

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The Rollout of The Rollout of Broadband Net Broadband Net Connections/Advanced Metering, Distributed Connections/Advanced Metering, Distributed Generation and BillingGeneration and Billing is Going to be Slow, is Going to be Slow,

Costly and IncompleteCostly and IncompleteTelecomTelecom ““Take the money saved by eliminating residential phone Take the money saved by eliminating residential phone

subsidies to pay for a broadband rollout.”subsidies to pay for a broadband rollout.”

EnergyEnergy Availability of advanced metering and other competitive Availability of advanced metering and other competitive

products, services, will better coordinate supply and demandproducts, services, will better coordinate supply and demand Tax incentives and regulatory reviews for “qualified energy Tax incentives and regulatory reviews for “qualified energy

restructuring investments”restructuring investments”

Faster ConnectionsFaster Connections

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Access to CapacityAccess to Capacity

The The Wireless/EnergyWireless/Energy Industry is Being Industry is Being Handicapped by the Shortage of Handicapped by the Shortage of

Spectrum/CapacitySpectrum/CapacityTelecomTelecom ““Slaughter the sacred cows. Take spectrum away from the Slaughter the sacred cows. Take spectrum away from the

Defense Dept., television broadcasters, and the satellite industry.”Defense Dept., television broadcasters, and the satellite industry.” Collect back-end royalties vs. front-end auctionsCollect back-end royalties vs. front-end auctions

EnergyEnergy Open and non-discriminatory access to pipes and wiresOpen and non-discriminatory access to pipes and wires Uniform, standardized interconnection rules, contracts and Uniform, standardized interconnection rules, contracts and

approval processesapproval processes Performance-based rates for infrastructure upgradesPerformance-based rates for infrastructure upgrades

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Regulatory UncertaintyRegulatory Uncertainty

Given the Chance, Given the Chance, Telecom/EnergyTelecom/Energy Utilities Utilities Will Litigate EndlesslyWill Litigate Endlessly

Telecom Telecom ““Streamline decisionmaking by regulators and courts, Streamline decisionmaking by regulators and courts,

eliminating delays that have thwarted the Telecom Act.”eliminating delays that have thwarted the Telecom Act.”

EnergyEnergy ““Consensus” building collaboratives don’t necessarily yield Consensus” building collaboratives don’t necessarily yield

optimal solutionoptimal solution FERC Region-wide RTO initiative-excellent startFERC Region-wide RTO initiative-excellent start Prohibit regulatory return of and on attorney feesProhibit regulatory return of and on attorney fees Allow litigation via email and phone conferencesAllow litigation via email and phone conferences

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Merger ReviewMerger Review

Regulators are Reviewing MergersRegulators are Reviewing Mergers Using Old-Fashioned CriteriaUsing Old-Fashioned Criteria

TelecomTelecom ““Regulators shouldn't worry about whether a merged Regulators shouldn't worry about whether a merged

company will dominate one niche, but instead consider its company will dominate one niche, but instead consider its share of the total telecom market.”share of the total telecom market.”

EnergyEnergy How will merger benefit consumers, i.e. merger savings How will merger benefit consumers, i.e. merger savings

passed on in larger consumer shopping creditspassed on in larger consumer shopping credits Market power can be mitigated with state action disclaimersMarket power can be mitigated with state action disclaimers

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New Products and Services are Key to Attracting Consumers

New Products and Services are Key to Attracting Consumers

Brand Names and "One Stop Shopping" are Marketing Myths

Telecom “If companies want to charge premium prices, they must develop

premium products.”

EnergyEnergy For competitive suppliers to flourish they must be able to offer all For competitive suppliers to flourish they must be able to offer all

manner of value-added competitive products, services, manner of value-added competitive products, services, information and technologies, rebundled into unique offerings information and technologies, rebundled into unique offerings tailored to consumer needstailored to consumer needs

Utilities exit the merchant function (all competitive functions)Utilities exit the merchant function (all competitive functions) Fully unbundled rates/Properly-structured shopping creditsFully unbundled rates/Properly-structured shopping credits

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Legacy Systems and Technologies

Legacy Systems and Technologies

Open Internet Standards Really do Encourage Open Internet Standards Really do Encourage Innovation and Lower PricesInnovation and Lower Prices

TelecomTelecom ““Telecom-equipment makers and carriers must accelerate Telecom-equipment makers and carriers must accelerate

the deployment of new technologies based on Internet the deployment of new technologies based on Internet protocols and other open standards.”protocols and other open standards.”

EnergyEnergy Internet-based data exchange using standardized Internet-based data exchange using standardized

information protocols and Uniform Business Rulesinformation protocols and Uniform Business Rules

Advanced metering, distributed generation and other Advanced metering, distributed generation and other technologiestechnologies

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Lessons LearnedLessons Learned

““Study the past, if you would divine the future”Study the past, if you would divine the future”

ConfuciusConfucius

““Men make history, and not the other way Men make history, and not the other way around. In periods where there is no around. In periods where there is no

leadership, society stands still. Progress leadership, society stands still. Progress occurs when courageous, skillful leaders seize occurs when courageous, skillful leaders seize

the opportunity to change things for the the opportunity to change things for the better.”better.”

Harry S. TrumanHarry S. Truman