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Energy Retailing: Setting a Standard Offer for Every Season

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

natural gas market).

Too high a forecast means setting energy prices too high for the regulated utility's energy customers. That is bad, since 100 percent of customers are served by the regulated utility at the outset of competition. However, with actual costs below these prices (the forecast was too high), competitors will enter the market aggressively, and consumers will have many lower-priced choices and switch quickly to companies selling at prices that reflect lower actual costs. Moreover, consumers will complain little about higher regulated utility prices if they have meaningful, lower-cost choices offered by competitors. At the same time, generators will build power plants rapidly, thus avoiding capacity shortages.

Chris King is the co-founder and chief executive officer of Utility.Com. He began in the energy industry at Pacific Gas & Electric in 1980 and has testified before Congress on deregulation issues. Contact King at Chris.King@Utility.Com.

1 The federal agencies have been largely inactive on pricing issues in deregulating energy markets, deferring to state regulators under the "State Action Doctrine," which basically states that prices set by state regulators are assumed not to violate federal anti-trust law because such prices are approved by state regulators.

2 For example, utilities in Massachusetts have been charging default service prices that are below their cost of power, and are recovering that shortfall through distribution rates.

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