While oil and gas prices now are falling after the latest experience with fuel-price volatility, the Global Energy Decision fuels team is focused on modeling an integrated world-wide system of...
Standard-Offer Service: Beauty or Beast?
through which investor-owned utilities obtain their electric supplies for residential and small business customers participating in standard-offer service. This competitive process must be “designed to obtain the best price for residential and small commercial customers in light of prevailing market conditions balanced by the need to guard against excessive price increases.” [Public Utility Companies Article, Section 7-510(c)(4)] . Among issues that the commission has investigated are: the implementation of an actively managed portfolio of generation supplies for residential and small commercial customers; the requirement that utilities build new generation plants or acquire electricity supply through long-term contracts; the solicitation of bids by utilities for the procurement of cost-effective energy efficiency and conservation programs; permitting opt-out aggregation of residential and small commercial customers; the establishment of an office of retail market development; and the requirement that investor-owned electric companies purchase accounts receivables of electricity suppliers for residential and small commercial accounts.
Of significant concern to the Maryland PSC is whether the competitive wholesale market will provide sufficient capacity to meet Maryland’s electricity needs in a reliable and least-cost manner. The Maryland PSC has recognized that “the net effect of restructuring was to remove state regulators from the role of determining the bulk of the costs associated with electricity rates … PJM not only manages the markets for wholesale electricity and its related components, but ensures the reliability of the electric system as a whole.” 1 The potential shortfall of new generating capacity and transmission constraints into the mid-Atlantic region lead to concerns about price and reliability:
“Proponents of the status quo will argue that the deregulated market simply needs more time to adjust. But given the serious reliability and pricing issues Maryland faces, the threshold issue is whether ‘waiting for the market to work,’ with no guarantee that it will, is an acceptable alternative to some form of re-regulation. Under restructuring, as the General Assembly originally conceived it and as the federal laws creating the wholesale power market contemplated, new generation would be built according to market forces rather than regulatory or legislative fiat. In our view, it would be a mistake to entrust the reliability of Maryland’s electric supply entirely to these forces. Some intervention is required in the immediate future.” 2
Notwithstanding substantive concerns about price and reliability, supply adequacy and issues relating to the competitiveness of the regional PJM wholesale market for electricity are largely beyond the jurisdiction of any individual state regulatory authority. Just as the states have little control over the production of gas at the wellhead and the transportation of gas over the interstate pipelines, the regulatory responsibility for ensuring workable competition and reliability for electricity in wholesale markets rests with FERC. Specifically, among other things, FERC regulates the transmission and sale of natural gas for resale in interstate commerce; regulates the transmission and wholesale sales of electricity in interstate commerce; ensures the reliability of high voltage interstate transmission system; and monitors and investigates energy markets. FERC notes that:
“National policy for many years has been, and continues to be, to foster competition in wholesale power markets.