Metering Relationships in the Era of Deregulation

Fortnightly Magazine - March 1 1995

Deregulation is a battle over metering relationships with commercial customers, not a struggle between competing suppliers of energy.

As long as the local electric utility emerges from the process with exclusive control over its metering, credit, and billing relationships, then deregulation will only cement its position as the customer's primary energy service provider (em and further enhance the "pool" concept by which the local utility acts as agent for the retail customer to purchase energy from independent power producers (IPPs). This outcome will prevail even if regulators adopt retail wheeling.

And there's more. If we assume a totally free and competitive market, then even a cable television or telephone carrier can enter the picture. These telecommunications firms, which can lay claim to a wealth of experience in customer billing and information management, can easily purchase energy services from local or distant electric utilities, acquire transportation and delivery through intermediate providers and local delivery systems, and then build great economies of scale through combined billings along with offsite readings and shutoffs. Their skills can create a bonanza in the synergy that comes from a complete package (em energy, entertainment, and telecommunications.

True deregulation would rest on the bedrock of offsite energy measurement and offsite termination controlled by a distant company. Cable, telephone, wireless or satellite technologies could all play a role. Partial deregulation would permit the local electric utility to act as a billing agent for its customers in reading, collecting, and enforcing service terminations, and acquiring services from any power provider and transporter.

But none of these visions (em whether feasible, intelligent or destructive (em reaches the basic issue: Who will control the billing, measurement, and collection relationship with the retail electric customer? Here are some scenarios.

Scenario #1:

Utility Mails the Bill

Let's assume that the local electric utility wheels power to retail customers (em power generated by an IPP. The IPP sells energy services to customers at negotiated rates, but subject to utility control over the credit and billing relationship with the customer. Competition will bring limited price relief to energy prices, but not wheeling charges, or credit terms. The local wheeler (utility) will read its own meter and bill for all charges and remit to the IPP for its contractual share, whether paid by the customer or not.

In a slight variation, payment to the IPP might depend on bill collection from the customer. Nonpayment forces shutoff, with reconnection dependent upon payment of all energy charges (wheeling plus energy), plus a deposit. The risk is borne by the wheeler but possibly also by the IPP, because the latter holds no right of onsite service termination.

Scenario #2:

IPP Mails the Bill, Too

The IPP, assuming some credit risks, alternatively may substitute itself as the end-use "customer of record" for payment and, perhaps, widescale bargaining of wheeling charges and rebilling the customer for energy charges itself.

Here are more options: The wheeler reads the meter for the IPP and either forwards the readings (electronically) to the IPP or bills the end-use customer directly under the IPP billing label, with directions to remit to the IPP (the wheeler would add a markup for wheeling charges). Under a third option, the end-use customer receives two bills: one bill from the wheeler for net wheeling charges, and a second bill for energy charges from the IPP.

Either way, nonpayment leads to IPP service termination, but through the tariff process laid down by the wheeler (remember, it's the utility's meter). In reality, it is the IPP, as customer of record, who fails to pay the wheeler, who in turn terminates service. Wheeling charges borne by the IPP for the end-use customer would continue until account closure or shutoff. Reconnection to the wheeler, at tariffed prices (or with another IPP at market prices), would depend upon payment of unpaid wheeling charges, not energy charges. Even though obligated to pay wheeling charges, a clever IPP would refrain from paying them as leverage to impede service reconnection with the local wheeler and gain prompt payment of all energy charges. Risks are actually shared by the IPP and the wheeling utility.

Scenario #3:

IPP Takes Over

In this scenario, the IPP breaks out of local meter control by substituting its own multidata meter, which would communicate information to the IPP as well as the wheeler for the customer, now known as an IPP metered customer or IMC. These smart meters, some of which are in trial runs, would communicate by cellular, remote, cable, fiber optics, or telephone lines. Obviously uneconomic at this time for mass residential use, absent big capital expenditure, these remote reading methods offer unlimited potential for medium- and large-sized customers, who would share some costs and whose energy volume would justify the cost. Electronic shared billing permits the local wheeler to track delivery charges.

The IPP would assume complete risk for the IMC's nonpayment and remain liable for wheeling charges until account closure or shutoff, again using nonpayment of wheeling charges as leverage for payment for energy. Assuming all credit risks with an IMC, the IPP would establish the account and credit terms, bill for all charges, and shut off for nonpayment either remotely (depending upon the technology) or manually, probably through a local contractor or the wheeler itself.

But the IMC (the consumer), faced with an IPP-initiated shut-off, may reconnect to the local wheeler, through the same or new meter, but subject to new credit terms. Assuming that the IPP would have paid all wheeling charges (and likewise absorbed the loss), the local utility would not condition reconnection upon payment of IPP wheeling or energy charges. However, the fact of nonpayment to the last IPP might convince the local wheeler to demand and receive a healthy deposit. Assuming that the IPP has not paid the wheeling charges (perhaps as a ploy to keep the customer?), the IMC, as a condition of service, might be compelled to pay the wheeling charges again. Failure to pay outstanding wheeling charges might prevent the customer from acquiring energy from any IPP, as the wheeler has no obligation to provide wheeling service, absent payment of those charges.

Competitive forces could motivate aggressive IPPs to pay a customer's outstanding and unpaid wheeling charges as a marketing or credit incentive. But an agreement between the unpaid IPP and wheeler preventing reconnection absent payment of outstanding IPP charges might violate anti-competitive laws.

David Cook is an attorney engaged in private practice with the firm of Cook, Perkiss & Lew, San Francisco, CA.


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