WHAT are the key elements of "retail restructuring"?
- Applies to monopoly investor-owned utilities (IOUs), but could be opt-in for co-ops and municipal utilities.
- Vertically-integrated IOUs are separated into electricity generation (power plants) and delivery (poles and wires); generation assets are divested to a separate company; and recovery of "stranded costs" is negotiated.
- Many electricity providers compete for customers based on cost, energy source and other factors.
- Both individual choice and community-level choice are best (see the Illinois model).
- For more information, see the overview "Electricity Competition and Consumer Choice in Colorado."
WHY would a monopoly state want retail competition and consumer choice?
- Monopolies for electricity generation can no longer be justified given thriving competition in other states.
- Competition will lower costs for consumers in the long run. See "Electricity Prices in Monopoly vs Choice States."
- Competition and consumer choice will lead to cleaner electricity, especially as the cost of renewable energy and energy storage continue to decline. Many retail choice providers offer a high-renewables option.
- Corporations want to contract directly for low-cost renewables without the additional costs added by monopoly utilities. States without corporate choice may have difficulty attracting and keeping energy intensive businesses.
- Competition will likely accelerate the pace of innovation if nimble third parties are allowed to propose better solutions for grid needs. Innovative ideas include: "Non-wires alternatives"; energy storage; distributed energy resources (DER); and demand-side management. These are flexible alternatives to centralized baseload generation, new transmission lines, and upgrading substations.
- The cost-of-service utility business model contains perverse incentives that inflate costs by encouraging overbuilding and by stifling innovation. Competition will unleash third-party innovators to propose cost-effective solutions such as those listed above.
- Competition shifts the risk of generation investment from consumers to the private sector, where it belongs.
- Now is the time to act, as retail markets will take 3-6 years to implement. The state should begin to position itself for a more dynamic, complex, distributed, renewable, and innovative grid of the future.
HOW could retail restructuring be implemented?
- Restructuring ultimately requires state legislation. However, it can be advanced by legislators, PUC commissioners, business coalitions, other stakeholder groups, and/or by voters.
- A committee in the Legislature and/or at the PUC could be established to study development of a competitive retail electricity market, using a transparent stakeholder process like that undertaken in Nevada.
- We can learn lessons of successful restructuring programs from other states, and avoid past mistakes.
- This is not a partisan issue. There should be equal numbers of D and R sponsors or committee members.
- Messages/themes: "monopoly vs competition"; "consumer choice"; "cheaper and cleaner electricity".
- IOUs may see restructuring as an opportunity. In Massachusetts, the CEO of the dominant utility promoted restructuring as a way to reduce business risk. Opportunities could be offered as "carrots" to incumbent utilities rather than be put out to bid, for example: needed grid modernization; greater distribution-level management of local DERs and electric vehicle charging; new energy services; and fair stranded cost recovery.
For more detail, see "The Case to Study Retail Choice" (submitted to PUC docket no. 17M-0694E).