Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
2008 CEO Forum: Conservation Compact
Utilities test new models to encourage investments in efficiency and conservation.
decide to use less isn’t getting the benefit? My view is decoupling will bring very little progress, at best.
Think about it. The utility will help the customer use less, but will charge more per unit so investors can be kept whole. Some are even brazen enough to say they not only want to be kept whole, they want to earn a return on the assets they don’t build.
How much sense does that make from a customer standpoint—loading up the customer’s bill with all these charges, because we have a model in place that has the wrong incentives from a public policy standpoint? Wouldn’t it be far easier to change the model to make sure you have the right incentives?
Again, the beauty of the competitive market is we don’t need an additional incentive. If we can help the customer spend less, we will get more customers. The competitive market, at the end of the day, can deliver an energy efficiency solution that a regulated rate-of-return model cannot.
Fortnightly: It’s been a year since the Texas price-to-beat structure was removed. How has that affected competition in the state?
Jacobs: In my view, today we’re still in the early stages of seeing the benefits of a competitive market. Most of the competition is still price-based as opposed to value-based. When we deregulated telecom in 1984, most of the early competition was price based. All the technology we have in the palms of our hands today was unthinkable 20 years ago when we deregulated. It didn’t happen right out of the chute.
We’re going through a similar process in power. Now as a customer you can pick a variable-rate plan, a fixed-rate plan, different tenors in terms of your contract for power supply, and more degrees of freedom. But mainly the products are differentiated around price. The next evolution in the market will move beyond differential pricing and into value added services.
Today in the retail business in Texas we sell a commodity. What we’re working toward is providing people with a value-added service that helps them buy that commodity. It sounds similar but it’s very different. Electricity purchases in Texas are a big line item, so helping people be thoughtful about that and understand what they are buying, when they buy it, will be valuable.
Fortnightly: Arguably retail deregulation didn’t work in most states the first time around because meters weren’t up to the task of delivering added value. Is the meter the key?
Jacobs: The smart meter is kind of like computer hardware. By itself it doesn’t do anything. We and other companies are providing the software to take advantage of the hardware. We’re providing solutions that will give customers valuable benefits—such as disaggregated rates and time-of-use rates.
The smart meter is the enabling technology. It will allow the power of competition to take over.
Fortnightly: Most of the country has essentially rejected retail competition in electricity markets. What are the odds of that changing any time soon?
Jacobs: It’s true Reliant is something of a lone voice on this topic