Nowhere are the failings of traditional utility regulation more evident than on Long Island. The New York Public Service Commission (PSC) has raised rates for the Long Island Lighting Co. (LILCO)...
Deregulating Retail Energy Services: First and Subsequent Steps
Division of the staff of the New York Public Service Commission, in issuing a proposed decision on electric utility restructuring. That proposed decision endorsed most of the ideas of the RESCO plan for creating a competitive retail energy services market while protecting consumers and the environment. The proposed order did not specify a schedule for achieving a fully competitive retail energy services market (Competitive Opportunities Available to Customers of Electric and Gas Service, Case 94-E-0952, Dec. 21, 1995 (N.Y.P.S.C.)).
Remaining Questions. Despite their apparent movement toward a deregulated industry segment for retail energy services, these states still face some major questions. For instance, will regulators provide full protection against abuses of market power and cost-shifting by retail energy services merchants affiliated with regulated electric utilities?
Nudging it Forward
Recognizing the benefits of a fully competitive RESCO sector is one thing; making it happen is another. The first steps must include actions to make the retail energy service market as competitive as possible, even while awaiting the final implementation date for retail direct access.
For instance, even though some elements of restructuring will unfurl over a longer timetable, regulators can and should begin immediately to address certain questions, such as: 1) What metering is most suitable for customers? 2) Is time-of-use metering cost-effective for various customer sizes? 3) Will customers be willing to pay for sophisticated metering?
Regulators can simply search for theoretical answers, but their best approach will be to immediately empower marketers and customers to provide some of this information by giving them the option of installing the metering they want.
Energy Price Signals. Make unbundled price information available to customers as soon as possible for both energy and reliability services. Make a real-time price signal (one that reflects utility cost of providing service) available so that all customers can choose real-time pricing if they arrange for real-time metering.
Metering and Billing. Have transmission and distribution segments of each utility provide customer metering, customer billing service, and customer energy-use information services to all RESCOs on equal terms. Allow customers and RESCOs to provide customer meters and to replace the utility-provided meters if appropriate standards are met. Also, allow competitive providers of billing and customer energy-use information services to join the market.
Access Charges. Establish and collect distribution connection fees to fund acquisition of increased energy efficiency, renewables, emission reduction, and all social programs, with the public utility commission (PUC) setting the level.
Externalities. "Marketize" by establishing an independently managed, open, and competitive process for acquiring energy efficiency, renewables, or
emission-reduction resources, supervised by the
state PUC or other state agency.
Advice for the FERC
Like a choreographer directing a ballet with over 50 dancers, the Federal Energy Regulatory Commission (FERC) can facilitate restructuring efforts at the state level by giving a little ad hoc direction in its final rule on open-access transmission.
Access Charges. First, the FERC should recognize state authority to impose a retail distribution access charge payable by RESCOs to the regulated distribution utility. Such an access charge would afford a revenue source to the states to fund societal