Philip R. Sharp, former 10-term congressman from Indiana, has been named director of the Institute of Politics at Harvard University's John F. Kennedy School of Government. Sharp assumes the...
Information Architecture: Building the Right Foundation for Customer Choice in Energy
The crazy quilt emerging in restructured markets only impedes competition.
The enthusiasm among energy retailers has become infectious. It grows as each successive state opens its market to competition. Yet behind the promise lies a grim reality.
Retailers struggle against a tide of thin margins, high customer-acquisition costs, inconsistent rules and regulatory prescriptions for the unregulated market. With all the rulemakings and workshops, the dollars budgeted by utilities to implement retail choice rise above even the level of spending to eradicate the Y2K millennium bug. Corporate strategy slips back and forth as if caught between the flippers in a pinball game. And customers, the target of all the economic affection, often seem aloof - torn between the safe haven of consumer protection and the allure of risk-based pricing. In short, customer choice experiences make apparent the need for new approaches in order for the larger market to succeed.
One problem is the diversity in approaches to information handling among restructured states. Lack of a coherent model for information processing, transfer and optimal use for market operations marks a key failing for which a remedy must be found, and soon. To the extent that can be done, the odds will improve that direct access will deliver economic benefits to customers. Failure to standardize the information architecture almost certainly will spell the demise of many competitors and delay the next stage of energy deregulation.
Patchwork of Markets
A new competitive energy market is moving ahead in select locations - California, Massachusetts, Rhode Island, Pennsylvania - with others soon to follow. Lawmakers and regulators in most remaining states have begun to consider competition as a viable alternative to monopoly regulation. About a dozen states have lurched forward with implementation plans. As a result, what exists in the United States cannot be described as a market or series of markets, but state-level re-regulation, a tentative step toward a national energy market.
Re-regulation means different things in different states. Is it wholesale competition or retail, or both? Which comes first? Is competition a tool for serving residential and small-business customers, or just large industrial companies? And what parts are competitive - energy alone, or related services like billing and metering, as well? Should competition be introduced to customers all at once, or in phases?
To specify a competitive infrastructure, plus the information architecture that must accompany it, one needs consistent business processes. Yet even a superficial review of recent U.S. industry experiences suggests that the utility wheel is being reinvented in every state and franchise area. Despite the recent launch of several consensus-building initiatives, regulators appear not to recognize the need to consistently enable the market processes and information flows that must work well in order for consumers to realize long-term benefits. (Among such initiatives are the Utility Information Group, Collaborative for Uniform Business Requirements, the North American Electric Reliability Council's Retail Access Working Group, and the Edison Electric Institute's consensus-building process for uniform business practices.)
Most experts agree that several conditions must be met for energy competition to succeed:
- A liquid and mature