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Ten ways to fix the mess in electric restructuring.
Fortnightly Magazine - November 1 2000

added costs and complexity. We now find that such mandates are burdens some potential competitors cannot live with.

8. Give Consumers A Fallback Option. As the telecommunications experience teaches, many people are indifferent to potential price savings because they do not want to deal with another choice. They need a default provider.

Furthermore, the default provider can serve as a benchmark for the market. Either state authorities or wires companies that are fully unbundled can obtain the default power supply through a competitive process. The price will reflect a bulk purchase for a class of customers, and should not be changed artificially by regulators either to encourage competition or insulate customers from the market. If suppliers want to compete, they will know the price they have to beat.

Though a default or standard offer supply may not be required indefinitely, states should end it only if and when customers are fully involved in the competitive market.

9. Use Metering, Not Load Profiling. Using load profiling to simulate customer demand and consumption is a poor substitute for the real thing. Load profiling provides a strong incentive for sellers to subsidize generation and transmission costs, one against the other. It moves us away from the goal of having customers pay prices that reflect their true cost of service.

Because of the arbitrary load determinations in effect in some places today, customers without demand meters are getting better deals than the larger customers with high load factors that already have demand meters. There simply is no load factor or load shape risk to the supplier with profiling, though some customers evidently are subsidizing others. Such cross-subsidies also exist when transmission and distribution costs are allocated according to load profiles.

Of course, it will take time for all customers to be provided with new meters. By requiring they have such meters before entering the competitive market, phasing is promoted.

Perhaps best of all, actual metering reduces complexity and the need for regulatory involvement in making arbitrary and inaccurate determinations about load profiles. Though complete metering comes at a cost, competition is here to stay and this one-time cost has long-term benefits.

10. Create a North American Market. Transmission lines do not stop at borders. The most efficient use of resources, reducing the need for new transmission and generation, would ignore borders.

Despite all the claims about the North American Free Trade Agreement and complaints about the reciprocity requirement in FERC's Order 888, cross-border trade has not increased significantly. Both suppliers and markets would benefit from a more open exchange.

Both the Congress and the Clinton administration have focused on reliability, but the agencies that can do something about it, the FERC and the North American Electric Reliability Council (NERC), in fact have not done enough to elicit a truly North American-wide response. It is time to end turf battles and provide NERC or a new agency with the tools to do the job without being beholden to any players. Real reliability in North America requires a real North American market.

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