Electric Restructuring Issues for Residential and Small Business Customers

funding provided by participating member commissions of the National Association of Regulatory Utility Commissioners (NARUC). The views and opinions of the author do not necessarily state or reflect the views, opinions, or policies of the NRRI, the NARUC, or NARUC member commissions. Executive Summary When a state considers electric restructuring, a commonly expressed concern is that the introduction of retail choice should not leave residential and small business customers behind. In other words, while "big dogs" may "eat first" (and perhaps the most), these smaller customers should also benefit from retail choice. Some states have adopted policies that specifically target residential and small business customers, such as customer education programs and measures to prevent unscrupulous marketing tactics (for example, "slamming" and "cramming"). However, some policies, such as setting low generation standard offer prices and rate discounts, may appear to be beneficial, but can actually reduce the competitive options avaiiabie to these customers. What has greatly complicated implementation of retail choice is the attempt to reconcile the consequential, but contradictory goals of: (1) making sure residential and small business customers benefit or are at least not harmed by competition, (2) encouraging the development of an efficient and competitive retail market (for example, policies aimed at limiting market power), (3) having broad customer participation, 94) protecting incumbent utilities from potential market losses (so-called "stranded costs"), and (5) maintaining "system benefits" that include system reliability, low-income assistance, and conservation and renewable programs. While every state has addressed, to varying degrees, each of these five overall goals, none has, or is likely to meet, all of them simultaneously. These goals come into direct conflict when existing customer rates are unbundled into various price components. These include the following components: (1) a generation price, which has been given various labels such as standard offer, shopping credit, price to compare, backout rate, and other labels; (2) customer charges, which include charges for "stranded costs," low-income customer assistance, conservation and renewable programs, and other items; (3) transmission and distribution charges, for the "wires" that remain regulated; and (4) in many states, an automatic discount off the previously regulated rates. Since states often also establish price ceilings during a transition period, all these price components must fit under the ceiling, which is the beginning of the practical difficulty. If the last three price components are established separately, this may mean that the generation component is set below what …