BY THE END OF MARCH, CALIFORNIA, RHODE ISLAND, and Massachusetts planned to offer retail choice to customers. However, early signs suggest electric competition may fall short of expectations due to stranded cost recovery mechanisms and the desire of customers to protect themselves from risks inherent in a competitive market.
When the California market was about open, less than 5 percent of customers had elected to switch suppliers. In Massachusetts, more than 40 companies originally planned to compete to supply retail power; only three companies had submitted applications by press time. In Rhode Island, which opened last summer for large customers, most customers opted to remain with the incumbent utility.
These three states have one thing in common: Rates are frozen at a preset level during a transition period. In Massachusetts, customers must pay delivery charges and a competitive transition charge to the incumbent utility. However, to ensure that customer rates do not rise above what they would have been under regulation, the incumbent utility must offer service at an initial rate of $2.80 per megawatt-hour. Therefore, whenever the wholesale power market prices rise above $2.80 per MWh, a customer will receive the lowest bill by purchasing power from the incumbent utility. Indeed, prices have recently risen above this level, making it extremely difficult for competitors to supply power profitably. Rhode Island has a similar mechanism.