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Facilitating Customer Choice in a Changing Environment

This report discusses the importance of customer choice in the electric retail industry and provides suggestions for promoting competition and improving customer service. It also addresses barriers to serving residential load and proposes solutions for enhancing the regulatory and legislative environment in Illinois.

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Facilitating Customer Choice in a Changing Environment

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  1. Facilitating Customer Choice in a Changing Environment Institute for Regulatory Policy Studies May 10, 2007 Mike Ratcliff BlueStar Energy Services, Inc.

  2. BlueStar Energy Services, Inc. • Largest Self-funded electric retailer in the USA • Currently, 21st Largest ARES in the USA • Certified Electric Supplier: Illinois, Maryland, Michigan, New York, and Washington D.C. • Commercial and Industrial • High level of interest in Residential

  3. The Illinois C&I Customer • Choice: • Products: Fixed Price, Index Price, Blend or Combination • Price Certainty (Risk Averse, limited load control) • Index (Risk tolerant, load control ability) • Transmission, Ancillary Services, and Capacity • DST: Single or Dual bill • Accurate, timely, and customized billing • Educated ARES Sales Representative • Responsive Customer Service • Payment Flexibility: Check, ACH, Credit card • Supply Reliability is a “given”

  4. The Illinois Residential Customer wants many of the same things as C & I customers: • Choice: • Product: Fixed Price, Real Time Pricing, Green vs Brown • Price Certainty (Risk Averse, limited load control) • Real Time Pricing • Transmission, Ancillary Services, and Capacity • DST: Single or Dual bill • Accurate, timely, and simplified billing • Educated ARES Sales Representative • Responsive Customer Service • Payment Flexibility: Check, ACH, Credit card • Supply Reliability is a “given”

  5. Less Risk Averse More Suppliers More Price Certainty Simplified Billing

  6. Current residential status “No Real CHOICE” • No Choice: Suppliers, Fixed versus RTP, Green power versus Brown, etc… • Captive customer • Poor customer service • No Savings Opportunities

  7. Illinois Regulatory & Legislative Environment • Capped Rates are NOT the answer, COMPETITION is the only true and tested mechanism for lowering prices. • Current Auction Methodology NOT the answer • Similar to the old MVEC in regard to • One time Market “shot” • Sometimes promotes competition, sometimes may not….

  8. Competition • Lower Prices over time • Promotes Innovation • Better Customer Service

  9. POLR Supply • Utility Purchased Gas Adjustment Model • Monthly rates based upon Actual Utility (POLR) costs through an integrated planning process • ICC familiar with methodology and reconciliation issues • Maintains utility economic indifference • Promotes Competition • Must use an ARES to fix long term supply costs • Avoids much of the “second guessing” which the Auction process can’t avoid since it is market based: • What is the best time of the year to hold the auction? • How long should the term be? • Is there “gaming” going on? • How much of the price is due to migration, credit, legislative and regulatory risk?

  10. Barriers to Serving Residential Load • Legislative Uncertainty • Bad Debt and Credit Risk • Billing – Economics of Scale • Utility preparedness • DASR process • EDI and Metering issues • Electricity Supply and Capacity “forward” market prices

  11. BSE Suggestions to Promote Residential Competition • Illinois utilities required to have standard EDI format • For the first 12 months utilities provide a “guaranty” of receivables (bad debt already built into approved base rates) • This is a compromise: Utilities don’t have to worry about Purchase of Receivables (POR) and related administrative concerns • Ameren joins PJM (MISO is not designed to accommodate Load Serving Entities or LSEs) • Serving load in Illinois should not be EXTREMELY different, from an operations perspective, depending upon whether load is north or south of I-80 • Fixed Distribution loss factors as opposed to hourly • PGA Methodology for POLR

  12. Closing Thoughts • Competition is the answer • Residential choice CAN work in Illinois • Illinois Utilities must standardize: • Regional Transmission Organizations • At the very least RTO’s need to adopt “tried and tested” standard operating practices • Distribution Loss calculation methodology (Fixed vs Hourly) • EDI Format

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