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Regulation or Technology? Low-Income Electric Customers and the Transition to Competition

Fortnightly Magazine - November 15 1995

to marketing, accurate pricing, and the creation of value-added services (em all of this accompanied by a vastly greater reliance on information technologies. The experiences of the natural gas and telecommunications industries suggest that electric utilities should focus now on acquiring more flexibility to adjust their prices and customer relationships.

Regulators themselves will not likely initiate the rule changes required to provide utilities this flexibility. In part, their reluctance stems from concerns that residential and low-income customers will be left out or actually hurt by competition and electric restructuring. Frequently, the regulatory response is to maintain "tight" utility regulation and deny choice to

residential and low-income customers during the transition to competition. Yet, this lack of customer choice1 reinforces the regulatory drive to protect customers from monopoly abuses with rules that ultimately bind utilities in a competitive market.2

The solution to the low-income customer issue resides not in an ill-fated effort to reinforce traditional approaches to treatment of low-income customers, but in a utility and regulatory commitment to creatively address the low-income customer question through participation in the changes to come. This commitment would most likely involve a grand tradeoff: In exchange for broad-ranging flexibility, utilities would agree to bring meaningful choices to low-income customers.

Creating a new paradigm for serving low-income residential customers will require: 1) the creative application of technology, 2) unbundling utility services and marketing new value-added services meaningful to low-income customers, and 3) targeting subsidies through effective "last-resort" mechanisms.

Integrating Information

Technology

Beyond the mere emergence of commodity competition in the electric industry, there is the inexorable reorganization of the industry around information and communications. The most important development now taking place is the elision of the information business (including telecommunications) with the energy industry.

The trade press and even the general media are replete with examples of electric utilities moving to integrate information technologies into their everyday business, both internally and externally. Much of the attention focuses on 1) sending price signals back and forth through real-time pricing; 2) lowering transaction costs at the residential and smaller commercial customer level with services such as

automatic meter reading, direct bank account billing, and customer information systems for cross-selling opportunities; and 3) entry into communications business segments such as cable-TV, local telephone, and wireless service. The emergence of an "electricom" industry is well underway.

To a considerable extent, deploying these technology applications requires the blessing of regulators. Such permission could be obstructed by traditional worries about low-income customers and how value-added services for well-off consumers could affect other levels of service. The political and pertinent question might be, "Where's mine?" The turn of the millennium should bring digital technologies that can address these problems:

s prepay debit cards, sold through terminals in retail stores and used in metering devices, could remove the need for deposits and turnoffs for nonpayment and could be issued by welfare agencies to qualified low-income customers

s time-of-use pricing, tied in with prepay debit cards, could permit low-income customers to enjoy the benefit of offpeak prices as well as price signals of onpeak consumption

s