In a little over a year, the electric utility industry has seen six significant mergers.1 This trend toward consolidation most likely will increase as the industry becomes more competitive.
Should Metering Stay at the Stand-Alone Disco?
Third-party billing and metering suppliers will probably counter the disco with their own low prices. However, for these companies to compete effectively, they'll have to maintain low prices in the short run through cross subsidies from their other diversified operations or assets.
If the disco succeeds through short-run marginal cost pricing to keep out billing and metering competition, in time it will have to raise its price to recover the long-run cost of modern computer and metering equipment (em and also manage the risk of inviting new entrants into the market. %n11%n
BACKSTOP SERVICES. By default, the disco could walk into unprofitable backup billing and metering service, unless certain regulatory constraints are removed. The most dangerous position for the disco would be as the backstop provider to customers not effectively served by the market. This scenario is almost assured if the disco doesn't convince those in power to remove the obligation to serve. F
George R. Pleat is a senior pricing analyst at Baltimore Gas & Electric Co. The views and opinions here come from the author, not BG&E. This article was presented at the Competitive Billing Strategies Conference, sponsored by International
A High-Cost fund for Aunt Minny?
Suppose no third-party vendor wants to provide competitive billing and metering services for Aunt Minny, who lives in the country, because of the high cost, perhaps a few hundred dollars a month. The vendor could supply the service, but Aunt Minny is accustomed to her 55-per-month fixed charge. She refuses to pay such a skyrocketing price. Who will serve Aunt Minny?
Unless the disco can escape its obligation to serve, it will be expected to provide billing and metering for Aunt Minny at some reasonable price, maybe $20 a month. Still, the disco loses financially. Is this good business for a stockholder? Such is the fallout from competition.
A universal service fee might enable discos to recover most of their costs, but watch out for negative customer relations. And the problem with his scheme is regulatory lag. A fee is estimated on a snapshot of the billing and metering costs. If the fee doesn't keep up with labor costs, then service may prove unprofitable. A disco doesn't want to be constantly going before regulators to request universal fee increases. This prospect would also hurt the disco's brand image--and do nothing for customer loyalty.
1 California was set to offer retail choice in electric supply by Jan. 1, with customers able to choose their own billing and meter companies. The startup now appears postponed until March 31, 1998. Moreover, while the state has deregulated metering and billing, the latest guidelines assign responsibility to energy service providers and utility distribution companies for collecting, transferring and processing metering data for their respective customers. ESPs and UDCs may contract with independent meter vendors, but end-use customers may select their metering services only from the ESP or UDC. See, Decision 97-12-048, Dec. 3, 1997 (Cal.P.U.C.).
2 For this discussion, the term "customer billing services" would include: (1) bill processing (including revenue) for generation supply and wires service,