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

Fortnightly Magazine - November 15 1995

safe remote turn-off and turn-on systems

s completely tamper-proof metering devices as well as protection against theft of prepaid electric smart cards (the smart card could be useful only in a certain meter)

s energy management systems that give low-income customers more control over their usage

s targeting of "last resort" subsidies through technology that allows for prompt enlistment, exit, and disqualification from such programs

s advanced communication systems that allow low-income customers to tie in with other information-based services such as:

v medical/education services

v home security systems

v fire protection systems

v social services

v employment opportunities.

Utilities will need to deploy these and other technologies on an experimental basis to advance the technology, demonstrate customer acceptance, and achieve regulatory comfort.

Offering Choices

Historically, many regulators and incumbent utilities have felt that customers don't really want or need choice (em they don't want the inconvenience of having to choose and don't need the types of new services spurred by competition. What consumers really want, the theory goes, is "plain old utility service." When competition first began to emerge in the telephone and natural gas industries, this argument was used by some incumbent utilities to persuade regulators and policymakers to resist competition. They argued that neither the customers nor the industries were smart enough to handle the messiness of competition. History has shown us the opposite.3 In regulatory halls across the country, it is still the advocates of choice who must prove that electricity customers are not only ready, willing, and able to participate in a competitive market, but want to exercise choice.

Pragmatically, utilities that want to offer choices to their higher-income customers may need to extend some appropriate choices to the poorer customers. Low- and high-income people are generally distinguished by their effective range of choices. The low-income customer issue will be minimized if new services are offered to both groups as ways to save money and provide people with choices.

Funding Low-Income Services

Although energy prices across the board have risen more slowly than the rate of overall inflation, those with low incomes still have difficulty paying for utility service. Given the general inertia of public policy, utilities risk being left with many of the social costs that have grown up over the years, but a declining market share. Programs that offer choices through technology to lower-income customers should include changes in the funding and design of residual market or "last resort" low-income programs. Three principles should guide these efforts.

Utilities must recognize that they will not be able to use their current role in funding and distributing social program benefits as an excuse for keeping competition out. That is a paper-thin wall.

New players entering into market segments formerly occupied exclusively by utilities should make some financial contribution to social costs.

To collect contributions from new entrants at the retail service level, the social costs to be borne through the electric system must be specified. (This would include specifying the types of services to be subsidized, and the level of subsidies required to meet the state's social