National Energy Restructuring:

The Time Is Now

By Craig G. Goodman

President and CEO

National Energy Marketers Association

Given a “new” political focus on States and Regions to help FERC implement a restructured national electricity market, the standards, market power, and operating practices will take center stage. The timing and design of a long-awaited standard market design could very well be decided as much by local and regional concerns as by FERC rulemakings.

Regardless of the Conference Committee’s compromises that will make up the Energy Policy Act of 2003, the ability of all classes of customers to get competitive energy prices and innovative products, services, information and technologies will remain a state-by-state, region-by region battle between competitive supplies and competitive market designs versus the decades old system of cross subsidies and monopoly rents associated with bundled utility services. As in any market, as long as monopoly services are bundled with competitive services, true price competition and its benefits cannot be achieved.

Fortunately, much of the fall-out from prior failures of market designs and market power abuses has subsided or become scrutinized by aggressive oversight. The industry seems to have stabilized and appears to be on a pathway of renewed growth.

However, without nationwide standards for data exchange, ATC determinations, delivery terms, operating procedures and practices, and interconnections standards, (to mention a few) the full value to consumers of true price competition will be harder to achieve.

From its inception, the National Energy Marketers Association has functioned under the premise that opening markets dominated by state franchised monopolies would be debated on a state-by state basis. Following thousands of comments, briefs, stakeholder meetings, collaboratives, technical conferences, administrative rulemakings and orders, only a small number of customers really have the opportunity to shop for energy in the same manner they can shop for telecommunication services, or any other competitively provided product or service. Imagine mandating that every local gas station remain open 24 hours a day, 7 days a week to make sure that every driver has a provider of last resort for gasoline. This is not a joke, when gasoline was in short supply, as price and allocation rules were extended to gasoline, jet fuel, natural gas liquids even asphalt and fuel oil. Only after ten years of stagflation and the imposition of a windfall profit tax were they eliminated. Ironically, once price controls were eliminated, prices declined, whereupon, Congress repealed a tax that was collecting no “windfall profits” and, therefore, no revenues. Yet, twenty-five years later we are still reluctant to design a truly price competitive market for natural gas, electricity and related services and technologies.

Yet, the current barriers to billions of dollars in consumer savings, productivity and job creating investments should not be difficult to achieve. A relatively short list of comparatively easy steps can achieve the start of an equitable and efficient restructuring of U.S. energy markets:

  • Uniform, national technology standards can and should be implemented as soon as possible. Numerous prototypes already exist. Receiving supply, demand, billing or usage data from any utility in the country should not be an expensive customized solution in every market.
  • Transparent, auditable, transactional price data must be available on an equal, non-discriminatory basis to all market participants. Confidential and proprietary data need not be divulged in the ordinary course of business. However, all who need to see or react to real transactional price data should have easy, non-discriminatory access to it.
  • All electricity should be treated as native load. All load is native load, there is no such thing as foreign load. Price and allocation controls failed in the liquid hydrocarbons market, and later in the natural gas market because the establishment of separate rules and special treatment for the same fungible commodity produces anomalous, normally higher prices and inefficiencies. To grant utility electricity preferential treatment to available transmission capacity defeats the entire premise of a restructured marketplace. All consumers should have equal, non-discriminatory access to competitively priced energy and related services and technologies.
  • Regions and utilities must eliminate seams that are created by differences in information and operating standards and protocols. Uniform product definitions, delivery terms and liquid trading hubs are vital to efficiently run energy markets.
  • Wholesale generators, marketers and traders must know precisely what practices are proscribed before, not after, transactions are completed. Market power and abuses must not be in the eye of the beholder, but in the rules of the marketplace.
  • Local distribution rates must be unbundled to permit consumers to see the actual, fully allocated, embedded costs they are paying for each element of bundled utility service or default services. This is the only way captive customers can get accurate price signals upon which to make intelligent shopping decisions.
  • Consumers must be empowered to use these embedded costs as credits against their utility bills to shop for competitive supplies and services.
  • Utilities must be incented to outsource competitive services and to reinvest in upgrading infrastructure, delivery services and reduced congestion.
  • Lastly, energy efficiency and demand side resources must be priced competitively.

These nine simple precepts may not seem difficult to achieve. However, to date, each one has been the subject of unending debate, litigation, comment and delay.

Competitively priced energy is too important to the nation, the economy and consumers to delay implementation or compromise on these vital principles. The time is at hand to move these important issues forward. NEM urges Congress, the Administration, State legislators and PUC commissioners as well as utility executives to help forge a workable solution to these issues and a speedy timetable for their implementation.

The time is now.