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A State Legislator Looks at Retail Wheeling

As FERC moves forward, most state legislators have remained content to sit back and wait for others to act. Part of this reticence stems from politics—the difficulty of changing course, invading someone else's turf, or tackling a new subject outside one's area of expertise. Legislators view problems differently than do regulators.

Fortnightly Magazine - July 1 1996
  • service "blocks" containing a cross-section of customers
  • 2) Assignment of suppliers to blocks based on consumer benefits
  • 3) Supplier rates that protect investments of utility shareholders
  • 4) "Opt-out" rights for municipals and rural co-ops
  • 5) Franchise rights within blocks remain temporary (3-5 years)
  • 6) Regulatory oversight of traditional social obligations

1. Customer Blocks. The least profitable, and hence least desirable, customer class for any utility is residential, because the cost of serving a small customer is proportionately greater than to serve a large one. Correspondingly, the return on utility company investments is greater with large customers than small. This fact is even more true when the small customers live in rural areas. Unless an electric provider is required to serve all classes of customers, the likelihood is that residential customers will not benefit from competition and will pay increasingly higher costs to maintain electric service, as large customers take advantage of alternative suppliers.

Thus, H.B. 2623 would require the KCC and existing utilities to divide the state into "customer service blocks," with each block containing industrial, commercial, and residential customers. The blocks would reflect existing utility infrastructure to the extent possible.

2. Assigning Suppliers. To protect consumer interests and provide a "level playing field" for the traditional electric provider and potential new suppliers, the KCC will evaluate prospective electric suppliers for the right to serve each customer block on the basis of economic benefits to customers and reliability, efficiency, and quality of customer service. However, as legislators we must also be concerned about how consumers will be able to intelligently evaluate the offers. H.B. 2623 provides that the KCC will ensure that consumers are protected by evaluating not just the price of electricity, but also how well the potential supplier can serve the customer reliably, including such considerations as storm damage repair.

The bill does not specify how competitors must provide services (e.g., by the electric supplier or on a contract basis for the supplier). The bill does require the KCC to take the service arrangement into account before authorizing a supplier to serve customers within a block.

3. Protecting Investors. Kansans own a very high percentage of the stock of Kansas-based utilities. Thus, "consumer protection" means protecting both electric customers and shareholders. They are likely one and the same. The KCC will also determine the reasonableness of the current provider's proposed charges with reference to previous capital investments in transmission and distribution facilities in the customer block, as well as stranded investment in generation facilities.

KCC review will accomplish two things. First, it will guarantee fair competition and a price as low as possible. Second, previous investments in generation, transmission, and distribution plant will not be lost. The KCC protects interests of customers, shareholders, and members, even while encouraging competition.

4. Municipals and Co-ops.  Rural electric cooperatives and municipally owned systems serve many areas in Kansas. Yet, competition will not respect artificial  constraints like city limits. Competitors will target commercial and industrial customers, offering them incentives to leave their municipal or co-op systems.

To ensure that municipal and  co-op customers benefit