Provider of Last Resort (POLR) is the function a utility usually serves in markets that have opened energy supply to competition, serving customers who do not choose a competitive supplier.  What will the POLR of the future look like?

Unlike other competitive marketplaces, a ‘default’ supplier of energy is required since nearly everyone needs energy:  if all the competitive suppliers left a marketplace, who would supply energy?  It is not a question of “POLR or not”, but rather “how do we POLR?”

Several models exist:

• Legacy model.  The utility controls the bulk of energy supply so they set the price using some kind of formula.  In the old days of silo energy solutions, this usually hinged on the utility’s cost of generating power.
• ERCOT model.  In the mid 2000’s Texas broke ground with a POLR option that made competitive energy suppliers the POLR.  Using a formula that hinges price of retail POLR supply on the price of wholesale energy made it cost effective for suppliers to be POLR suppliers as well.
• NJ Auction model.  Also in the 2000’s NJ introduced their ‘BGS Auction’, which invited energy wholesale suppliers in to bid on ‘tranches’ of customer supply.  NJ developed a model where 1/3 of energy supply was purchased each year, helping to ‘levelize’ the cost of fuel.  Several other markets, including PPL, have adopted similar auctions.  PPL’s default price changes quarterly.

Competition shines light into previously hidden processes.  With wholesale markets in place, there should be little magic into how the ‘default’ price is calculated.  One even can question why the LDC should manage this process, moving closer to the ERCOT model?

Many legislatures and commissions originally hedged their competition bets by capping POLR rates.  The use of wholesale ‘auctions’ is another hedge to protect consumers.  Yet these ‘auctions’ may be sucking the life out of the competitive marketplaces, making it too difficult for suppliers to compete.

In a time where all hands are needed on deck helping consumers conserve energy, and increasing supply for ever expanding energy needs, is now the time to eliminate competitive energy suppliers:  job-creators, entrepreneurs, innovative thinkers, investors?

We think not.

This entry was posted on Tuesday, April 20th, 2010 at 7:57 pm and is filed under Billing, Markets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.