Standard-Offer Service: Beauty or Beast?

Fortnightly Magazine - September 2008
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Economist Thomas Sowell wrote, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

There’s an inherent conflict between two public policy goals in states where electric and natural gas customers have the ability to shop for generation supply and gas commodity. One policy goal is to encourage the development of a vibrant competitive retail market for energy supply. This goal should be accomplished by ensuring the ability of retail suppliers to compete is not limited by inappropriate price signals or structural impediments. For example, any standard-offer service provided by the incumbent utility, to the extent practical, should reflect the full costs of service. Alternatively, policies designed to encourage retail choice that are not based on sound economic principles should be rejected.

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