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Deregulating Retail Energy Services: First and Subsequent Steps

Fortnightly Magazine - May 1 1996



One popular model in electric utility restructuring assumes a fully competitive merchant segment providing retail energy services. These "retail energy service companies," or RESCOs, would offer services described as heating, cooling, ventilation, lighting, drive power, information, and communications. Within such services lie such separate components as electricity, energy efficiency, load management, gas, equipment, and management.













































This "RESCO Plan" would include a fully

competitive electric generation function, and fully regulated monopolies for electric transmission, distribution, and system reliability. It would deregulate the process of acquiring the generation and load-reduction services by customers. More important, the RESCO Plan would retain mechanisms to achieve societal objectives such as universal service, low-income programs, cleaner air and water, greater energy efficiency, and increased use of renewable energy. It offers regulatory mechanisms for identifying and supporting societal objectives that the market alone does not attain.

Proponents have introduced a RESCO Plan in at least five states: California, New York, Wisconsin, Illinois, and Ohio. This paper explains how the plan was introduced in those states and focuses on movement toward a RESCO Plan in the first three states on that list: California, New York, and Wisconsin.

Of those three, California and New York have high electricity costs; Wisconsin generally boasts of low costs. Also, California and New York face potentially significant stranded-cost issues while, in Wisconsin, the market value of utility generation assets and retail merchant function assets may well exceed the book value.

In all three states, the restructuring proceedings have provided the opportunity for input for all affected customer groups in regulatory processes a year or greater in length.

Setting the Stage

Wisconsin. The Wisconsin Public Service Commission laid out an extensive regulatory process for establishing a competitive retail energy services market in its restructuring decision of December 19, 1995. It specified a broad framework for a competitive retail energy services market and a five-year implementation schedule with checkpoints to verify achievement of necessary ingredients for a fully competitive retail energy services market (Report to Wisconsin Legislature, Electric Utility Restructuring in Wisconsin, February 22, 1996).

California. In its landmark decision of December 20, the California Public Utilities Commission laid out an extensive regulatory process for setting up a competitive retail energy services market, with a transition to retail access for all starting in 1998 and concluding in 2002. The decision provides for an independent system operator, a separate voluntary economic dispatch center, incentives for utilities to divest certain generating assets, and phased-in retail customer choice for all customer rate classes (Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 95-12-063, Dec. 20, 1995, modified by Decision 96-01-009, Jan. 10, 1996, 166 PUR4th 1 (Cal.P.U.C.)).

New York. On December 21, administrative law judge Judith Lee joined with Ronald Liberty, deputy directory of the Energy and Water