Can Energy Markets Survive Without Going ‘All-In’?
When Texas opened its ERCOT marketplace to choice in 2001, they pushed all their chips into the middle of the table. The ‘affiliated retail electric providers’ AREP were split from the existing utilities – renamed ‘Transmission and Distribution Service Providers [TDSP] to reflect their new responsibilities – and these new AREP’s were given a period of time where they served as the default electric provider. With default rates set high by the PUCT, energy consumers were incented to find a new electric retailer. Eventually the burden of providing default power was spread across a broader group of REP’s.
When Pennsylvania opened its market in 1998, legislators were not so confident in the hand they were dealt. They left the ‘default’ commodity providers as a part of the utility, and further hedged their bets with ‘caps’ that served as an ‘emergency valve’ in case energy choice did not work as designed. After a flicker of hope for choice, higher wholesale costs essentially shut down the PA electric marketplaces. PA residents benefited from artificially low rates set by these caps, which expire 2010 and 2011.
As these rate caps expire, consumers are getting a taste of what wholesale-market-driven prices are like. In theory this is not much different from gas for our cars. The market sets a wholesale price, and retailers offer products based on primarily those wholesale costs. When prices go really high, people buy smaller cars or hybrids, or they drive less.
The same is true with electricity: we need to consume less. Demand continues to grow, and adding supply options in the northeast corridor is difficult , with ‘not-in-my-backyard’ [NIMBY] issues greater due primarily to population density. Load control and other energy-saving products will grow once customers are more aware of the dynamics of the electricity wholesale markets.
Creativity in solving energy challenges is critical. Imagine if Bill Gates stuck with his original statement that computers would never need more than 640kb of memory?! Or if pre-1980 AT&T and Ma Bell’s were charged with deploying nationwide cellular coverage? We most likely have no idea what the greatest energy saving invention will be in 10 years. We are more likely to get that invention – and help solve our energy issues – with more cooks in the kitchen, not less. Relying on a single regulated company – the incumbent default utility – to solve these problems is not the path with the most options. Instead, let’s have a vibrant, alive, competitive marketplace of energy providers with access to the data and controls needed to offer products that give customers the incentives necessary to change their usage patterns.
Over the next few years we will see if PA’s hedged bet leaving the utility as the default energy provider was the right move. The proof is in the pudding: a wide variety of energy providers, products and services to help consumers manage their energy and energy costs, or most consumers on default service from the utility, with state- or utility-driven solutions to energy challenges?
I prefer my pudding with the flavor that comes with lots choices and options, please.