News Analysis

 

Electric Shopping Credits: In Search of an Apples- to-Apples Comparison

 

Methods vary, notes one analyst, but are they barking up the wrong tree?

Those in the electric industry use all manner of methods to calculate the size of generation shopping credits-the figure (sometimes referred to as the "price to beat") that is supposed to represent the stand-alone price of the bare electricity commodity that customers might otherwise buy from a competitive supplier, rather than from their traditional utility.

Some compute the credit from the bottom up, adding the individual cost components of generation supply (should that include marketing expenses as well?), while others take the total traditional utility bill and try to back off the various costs, one by one, that don't have anything to do with generation.

Yet even when the resulting figure seems to fall way below the recognized spot market power price, as often occurs during the peak summer months, it can prove difficult for suppliers to convince regulators to increase the credit. Utilities also have been known to ask for a seasonally adjusted credit, to discourage customers from churning their accounts back and forth between utility and competitor.

Consider the recent case involving New York State Electric & Gas Co. Everyone conceded that NYSEG's 3.7 cent credit fell short of summer spot prices, but regulators said they wouldn't bump up the credit to 5 cents, as requested by Advantage Energy, the unregulated supplier, since the commission found no proof that the current credit strayed from the true wholesale price.

To cut through the clutter, solicited the aid of Henry Yoshimura, senior manager of economics and public policy and staff at XENERGY Inc., an energy services and consulting firm, who computed the table of generation credits shown on p. 54, based on distribution company tariffs, filings with regulatory agencies, and state commission orders and website materials.

"Most of these are determined by looking at tariffs and then calculating from the tariff what the shopping credit would be if this customer were purchasing from a competitive supplier." Bear in mind, of course, that in a given territory, there might be a couple dozen tariffs. Compound that with the fact that energy charges can be time-differentiated, say, between peak and off-peak, and sometimes even seasonally differentiated, and the puzzle gets even more complex.

"One of the things we tried to do in the table is reduce the shopping credit to a single cents per kilowatt-hour number so they're comparable," Yoshimura says.

Arizona: One State, Three Theories

One can find different approaches to the shopping credit puzzle even within a single state. Arizona offers a good example, where the utilities, Arizona Public Service, Salt River Project, and Tucson Electric Power (not shown in the table), each follow different methods for representing the generation credit in their respective tariffs.

For APS, the generation credit is a derivative value that is calculated by backing out the "direct access rate"—the rate that APS charges to customers taking power from a competitive supplier—from the utility's standard offer rate billed to default customers,