One popular model in electric utility restructuring assumes a fully competitive merchant segment providing retail energy services. These "retail energy service companies," or RESCOs, would offer services described as heating, cooling, ventilation, lighting, drive power, information, and communications. Within such services lie such separate components as electricity, energy efficiency, load management, gas, equipment, and management.
This "RESCO Plan" would include a fully
competitive electric generation function, and fully regulated monopolies for electric transmission, distribution, and system reliability. It would deregulate the process of acquiring the generation and load-reduction services by customers. More important, the RESCO Plan would retain mechanisms to achieve societal objectives such as universal service, low-income programs, cleaner air and water, greater energy efficiency, and increased use of renewable energy. It offers regulatory mechanisms for identifying and supporting societal objectives that the market alone does not attain.
Proponents have introduced a RESCO Plan in at least five states: California, New York, Wisconsin, Illinois, and Ohio. This paper explains how the plan was introduced in those states and focuses on movement toward a RESCO Plan in the first three states on that list: California, New York, and Wisconsin.
Of those three, California and New York have high electricity costs; Wisconsin generally boasts of low costs. Also, California and New York face potentially significant stranded-cost issues while, in Wisconsin, the market value of utility generation assets and retail merchant function assets may well exceed the book value.
In all three states, the restructuring proceedings have provided the opportunity for input for all affected customer groups in regulatory processes a year or greater in length.
Setting the Stage
Wisconsin. The Wisconsin Public Service Commission laid out an extensive regulatory process for establishing a competitive retail energy services market in its restructuring decision of December 19, 1995. It specified a broad framework for a competitive retail energy services market and a five-year implementation schedule with checkpoints to verify achievement of necessary ingredients for a fully competitive retail energy services market (Report to Wisconsin Legislature, Electric Utility Restructuring in Wisconsin, February 22, 1996).
California. In its landmark decision of December 20, the California Public Utilities Commission laid out an extensive regulatory process for setting up a competitive retail energy services market, with a transition to retail access for all starting in 1998 and concluding in 2002. The decision provides for an independent system operator, a separate voluntary economic dispatch center, incentives for utilities to divest certain generating assets, and phased-in retail customer choice for all customer rate classes (Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 95-12-063, Dec. 20, 1995, modified by Decision 96-01-009, Jan. 10, 1996, 166 PUR4th 1 (Cal.P.U.C.)).
New York. On December 21, administrative law judge Judith Lee joined with Ronald Liberty, deputy directory of the Energy and Water Division of the staff of the New York Public Service Commission, in issuing a proposed decision on electric utility restructuring. That proposed decision endorsed most of the ideas of the RESCO plan for creating a competitive retail energy services market while protecting consumers and the environment. The proposed order did not specify a schedule for achieving a fully competitive retail energy services market (Competitive Opportunities Available to Customers of Electric and Gas Service, Case 94-E-0952, Dec. 21, 1995 (N.Y.P.S.C.)).
Remaining Questions. Despite their apparent movement toward a deregulated industry segment for retail energy services, these states still face some major questions. For instance, will regulators provide full protection against abuses of market power and cost-shifting by retail energy services merchants affiliated with regulated electric utilities?
Nudging it Forward
Recognizing the benefits of a fully competitive RESCO sector is one thing; making it happen is another. The first steps must include actions to make the retail energy service market as competitive as possible, even while awaiting the final implementation date for retail direct access.
For instance, even though some elements of restructuring will unfurl over a longer timetable, regulators can and should begin immediately to address certain questions, such as: 1) What metering is most suitable for customers? 2) Is time-of-use metering cost-effective for various customer sizes? 3) Will customers be willing to pay for sophisticated metering?
Regulators can simply search for theoretical answers, but their best approach will be to immediately empower marketers and customers to provide some of this information by giving them the option of installing the metering they want.
Energy Price Signals. Make unbundled price information available to customers as soon as possible for both energy and reliability services. Make a real-time price signal (one that reflects utility cost of providing service) available so that all customers can choose real-time pricing if they arrange for real-time metering.
Metering and Billing. Have transmission and distribution segments of each utility provide customer metering, customer billing service, and customer energy-use information services to all RESCOs on equal terms. Allow customers and RESCOs to provide customer meters and to replace the utility-provided meters if appropriate standards are met. Also, allow competitive providers of billing and customer energy-use information services to join the market.
Access Charges. Establish and collect distribution connection fees to fund acquisition of increased energy efficiency, renewables, emission reduction, and all social programs, with the public utility commission (PUC) setting the level.
Externalities. "Marketize" by establishing an independently managed, open, and competitive process for acquiring energy efficiency, renewables, or
emission-reduction resources, supervised by the
state PUC or other state agency.
Advice for the FERC
Like a choreographer directing a ballet with over 50 dancers, the Federal Energy Regulatory Commission (FERC) can facilitate restructuring efforts at the state level by giving a little ad hoc direction in its final rule on open-access transmission.
Access Charges. First, the FERC should recognize state authority to impose a retail distribution access charge payable by RESCOs to the regulated distribution utility. Such an access charge would afford a revenue source to the states to fund societal programs: universal service, low-income programs, efficiency incentives, renewable energy promotions, and environmental programs. States would also need such authority to collect a competitive transition charge for any stranded investment states choose to authorize.
Outage Information. Second, the FERC should require that all generators using the transmission system or connected to the transmission grid report publicly to the Commission on any planned or forced generation outage (full and partial), as such information will likely become more difficult to obtain with a fully competitive generating sector. This information will be critical to maintaining system reliability and allocating the costs.
Transmission Planning. Third, the FERC should require all transmission owners to belong to a regional transmission organization (ISO or RTG), which would develop an open process for transmission planning and siting. This approach would help identify and execute the best environmental alternatives in regional transmission planning and sitting, without infringing on state jurisdiction.
(The transmission system operates like a big, complicated, and fascinating machine, but engineers rarely disagree once all system information is placed on the table. Environmental advocates should be allowed to join the process.)
Postage Stamp Rates. Fourth, since complex tariffs create barriers to power-supply transactions, the FERC should order regional postage-stamp tariffs with a bidding mechanism to allocate constrained interfaces to their highest economic use.
Regional Tariffs. Fifth, the FERC should mandate a single consistent and effective transmission tariff for each ISO/RTG, one that integrates network access and flexible point-to-point services.
(The single, utility-specific pro forma tariffs proposed in the FERC's Notice of Proposed Rulemaking on open-access transmission rely on an arbitrary construct (em i.e., utility transmission ownership within circumscribed territories (em that will not prove meaningful in a regional access regime.)
Winners and Losers
Some groups will wind up supporting the idea of a competitive market for retail energy services. Others won't.
"Soft" Energy Advocates. How many advocates for environmental, efficiency, and renewable energy agendas would like to see more emission reductions or greater reliance on renewables? Most of them. These groups will likely embrace the RESCO Restructuring Plan, because it unleashes a potent new mechanism for achieving their goals (em customer choice.
Large Customers. How many large customers that sell products to the public will want to create
an anti-environment public image for themselves by denying all responsibility for environmental improvement? Probably not very many.
Small Customers. How many small customers could get used to having lower electricity costs and control over the services they receive? Most of them. Arguing against consumer choice makes as little sense as advocating that everyone must buy the same brand and model of car or the same brand of beer. Once choice places small customers and small customer advocates in the driver's seat, and once they start steering benefits their way, they will not want to go back.
Electric Utilities. What is a utility away from its home service territory? A RESCO. Utilities that are interested in competing outside their current
service territory are likely to migrate to supporting the RESCO Plan because away from home they will have the same interest in a level playing field
in the retail energy services market as nonutility RESCOs do.
Consumer Groups. Retail consumer choice will greatly strengthen the ability of consumer advocates to obtain the protection and benefits they want for customers. Retail access will elevate any consumer advocate with a significant client base from the role of a supplicant in regulatory proceedings to that of a dictator of terms in contract negotiations. Visualize for a moment the power that consumer advocacy organizations like the American Association for the Advancement of Retired People (AARP) will wield when they issue a request for proposals (RFP) to provide energy services to their gargantuan membership bases. This buying clout will give organizations like AARP the power to obtain whatever consumer protection they want by contract.
First of all, they will get startlingly good bids for providing the range of retail energy services, including electricity, gas, energy-efficiency improvements, and communications services. Second, they will be able to specify whatever customer protection they choose in the RFP. Third, the prices will be so good that such organizations will be able to fund special low-income services and protection for their members through a small markup on the resale of energy services.
My question to environmental organizations and consumer advocacy groups is: How long will they fight to delay customer choice over retail energy services, even though a delay postpones the benefits that their clients want? t
Michael Arny is president of Arcadia Resources Inc. and director of the Consortium for Integrated Resource Planning, Engineering Professional Development Department, University of Wisconsin. Arcadia Resources Inc. has established the RESCO Restructuring Coalition to support the RESCO Plan.
RESCO Proponents
. Johnson Controls, Inc. filed RESCO Plan in California, Wisconsin, Illinois, and Ohio.
. Alliance for Clean Energy Systems (ACES) supported plan in Wisconsin.
. Wheeled Electric Power. Helped introduce Plan in New York.
. Arcadia Resources, Inc., manager of RESCO Restructuring Coalition, helped refine Plan in Wisconsin. Filed comments on FERC open-access NOPR suggesting federal actions to support the RESCO Plan.
RESCO Origins
The RESCO Plan for utility industry restructuring was first developed in 1994 in a report titled, An Integrated Approach to Restructuring the Energy Services Industry, Retail Energy Services Industry Competition Can Deliver the Goods: Energy Efficiency, Environmental Protection, Consumer Protection, and Lower Costs, published by the Consortium for Integrated Resource Planning of the Engineering Professional Development Department at the University of Wisconsin.
This initial report was written by the current author with valuable input from a number of individuals representing consumer, environmental, regulatory, and business perspectives, including Sonny Popowsky of the Pennsylvania Office of Consumer Advocate. David Lapp of Environmental Action, Commissioner Scott Neitzel of the Wisconsin Public Service Commission, Richard Cudahy of the National Association of Energy Services Companies, and David Matasek of Johnson Controls Inc.
Signing Up for Choice
The RESCO Restructuring Plan gives customers a broad spectrum of options for acquiring energy services.
Pick a Package. Sign up for one of the standardized bundles of energy services assembled by the state PUC and provided by a supplier selected in a competitive acquisition process.
Do it Yourself. Bundle the services you need by contracting with multiple energy service companies to create a customer-tailored package of services.
Hire it Done. Hire one RESCO to acquire and deliver the entire package of desired energy services. Such a company might be called a Super-RESCO.
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