Allows Utilities to Maintain Dominance in Markets
Frank Lacey has worked in competitive energy markets since their inception as a consultant to utilities navigating restructuring and as a direct market participant once the markets opened. After more than twenty years in the industry, he launched Electric Advisors Consulting, in the fall of 2015. His focus is assisting clients with energy market issues — regulatory, strategic and business. His clients include energy market participants and end-use consumers. He can be reached at firstname.lastname@example.org.
Default service prices have been wrong for two decades.
Most of the states that have implemented competition in electric and gas sales have employed a Provider of Last Resort, POLR, or default service to supply electricity to customers who do not select an alternative provider. Yet the utilities allocate few to no "costs to serve customers" to default service rates.
This practice has allowed the incumbent utilities to price default service below market rates. And it has allowed them to maintain unregulated monopoly-like power and dominant market positions in the energy markets in their respective service territories.
The failure to allocate costs appropriately to a utility business unit is in direct conflict with cost allocation guidance from the National Association of Regulatory Utility Commissioners, NARUC. Until the default service pricing distortion is corrected, utility default service providers will continue to hold an anti-competitive pricing advantage in the provision of retail electricity service.1 Regulators should act to correct this major market flaw.