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Energy Retailing: Setting a Standard Offer for Every Season

Sending Price Signals, Without Illegal Tying
Fortnightly Magazine - August 2000

and "last resort service" for customers that are not eligible for standard offer.

Prior to the June order, both standard offer and last resort service were priced at 3.8 cents per kilowatt-hour. However, market prices are far higher. In April, the state's largest electric distribution company entered into a six-month contract for last resort service supply at monthly prices ranging from 3.8 cents in May, to 6.5 cents in June, and 8 to 10 cents in July and August.

However, the PUC chose to hold last resort service prices well below market prices. For non-residential customers, it set last resort service prices at 2 to 3 cents below the utility's cost of power. For residential customers, it set last resort prices at 3 to 6 cents below the utility's power cost.

New York: Force Utilities to Exit Sales?

The New York Public Service Commission has opened a proceeding to consider a range of issues relating to the further development of the competitive retail electric and gas markets (Case 00-M-0504). Electric competition is well underway in New York. In this proceeding, the PSC will "refine [its] concept of the mature competitive retail energy markets (especially the future role of the regulated utilities) and É identify and remove obstacles to its achievement." 1

Among the issues regulators are considering is a different approach to pricing utility generation service: removing the problem altogether by requiring the regulated utilities to exit the business of selling electricity. The PSC has adopted a similar policy for the gas market. It described the advantages as follows: "Avoid the market-limiting effects of the LDC's dominant-provider position; provide a level playing field for gas supply marketers; place downward pressure on prices; and eliminate the regulation of what would become a competitive function." 2

If the utility stops selling electricity altogether, it is no longer necessary to struggle with the pricing of utility generation service. However, it becomes necessary to designate another entity to serve as the provider of last resort, and to determine how that service will be priced. These and other issues will be considered in the New York proceeding.

Texas: Competitive Bidding for Last Resort Service?

The Public Utility Commission of Texas has two proceedings underway relating to the pricing of utility generation service.

The first concerns the establishment of the Provider of Last Resort, or POLR The Texas electric restructuring act provides that competitive retail electric suppliers--and not the regulated distribution companies--will serve as the providers of last resort. The statute requires the PUC to designate those providers, and requires POLR providers to offer a standard retail service package to any customer that requests it. 3

The PUC staff has issued a draft rule regarding POLR. The draft rule provides that the POLR providers will be selected through a competitive bidding process that will also determine the rate for POLR service. The staff is requesting comments on this and other aspects of the draft rule.

The second Texas proceeding concerns the "price to beat" . The Texas restructuring act requires competitive affiliates of the regulated utilities to offer