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Should Metering Stay at the Stand-Alone Disco?

Fortnightly Magazine - February 1 1998

meet a growing segment for billing and metering. Regulators probably will be more sympathetic to enhancing the rate base because the changing electric industry forces the disco to make these types of investment decisions.

If, however, the disco operates under performance-based pricing, the profits aren't guaranteed unless the expanding services are provided efficiently. Otherwise, the stockholder would carry the burden of lower profits. If the disco has exhibited poor load-profiling capabilities or an antiquated billing system, stockholders (via management) might incur risk to recommend performance-based regulation. In an expanding billing/metering market, costs may be insurmountable, leaving the stockholder vulnerable.

THE SOCIAL WELFARE. In any event, the disco must first convince legislators and regulators that a monopoly in billing and metering will serve the best interests of the utility and the consuming public.

A regulated distribution utility will assume the obligation to serve, meaning that every household in the service territory with electric load requirements enjoys the right to receive wires, billing and metering service from the disco at some reasonable level of reliability, no matter how difficult or expensive it may be to reach or serve a customer.

With this obligation to serve, the disco will already have in place an enormous infrastructure, allowing the utility to conduct billing and metering services at a very low marginal cost. %n4%n This structure of low marginal costs could help the disco minimize longer-term price hikes to retail customers, offering a logical argument to retain billing and metering operations as a regulated monopoly.

PRICING STRUCTURE. Under the price-setting mechanisms in place today at most investor-owned utilities, billing and metering costs are collected through a "postage-stamp" design called a customer charge or fixed monthly price. If billing and metering should remain regulated, the disco should advocate continued use of postage-stamp pricing.

These charges are popular with consumer advocates. High-cost, low-use customers are subsidized by low-cost, high-use customers. These postage-stamp prices also have been historically set below cost to protect customers from "sticker shock." The postage-stamp customer charge also spreads uncollectible or bad-debt burdens over all customers. %n5%n Typically the customer charge is designed to recover these costs (em offering an added benefit to delinquent bill payers who still desire continued service.

UNECONOMIC CUSTOMERS. If billing and metering remains regulated, the disco likely will be required to continue to serve uneconomic customers. That means serving all distant, hard-to-reach and unsafe meter-reading locations. It also includes coordinating and enforcing bill collection and fighting energy theft. Since the disco is the sole provider of service, it should weigh the economic disadvantages of such a venture.

For these costlier customers, the disco will have to continue meter reading at subsidized prices. Traditionally, for electric utilities, some of these costs are subsidized through rolled-in kilowatt-hour charges (em either of the same rate schedule or of other customer groups. If the customer, living in a geographic area with low density, also exhibits a low-use electric profile, the costs will be paid by some other customer group. Does the disco want to continue to offer high usage charges for wires services to its