Electric Deregulation Is Coming Answers to the Most Common Questions

Electric Deregulation Is Coming

The deregulation of the electric industry appears to be a sure thing, but there is still much confusion as to

the particulars. Today the three most commonly asked questions concerning the deregulation of electricity are: When will it occur? Will my reliability be affected? How large will my savings be?

Pilot Program Paves the Way

The good news is that electricity users will be able to choose their suppliers in the not-so-distant future. On October 1, 1996 Con Edison submitted a compliance plan to the New York Public Service Commission (NYPSC) which calls for a one-year-long pilot program to begin in 1998.

The pilot program will be open to about 5,600 customers with a peak demand of about 100 MW which is about one percent of Con Edison's peak demand. The test will involve all the major sectors of Con Edison's customers including residential, commercial and industrial. Following the completion of the pilot program Con Edison will begin allowing additional customers to choose their own suppliers until the year 2003 when all customers will have the right to choose.

It should be noted that the NYPSC had a goal that all customers in New York State would have the right to choose suppliers by 1998. The Con Edison plan falls far short of this mark, and the NYPSC may require Con Edison to move more quickly toward full competition. A NYPSC response to Con Edison's filing is expected this March. All other utilities in New York State have filed similar plans with the NYPSC and several are also running pilot programs. Utilities in New Jersey and New England also have plans to deregulate.

The Impact on Reliability

Reliability after deregulation is expected to be unchanged, because the electrical transmission and distribution systems will be unchanged from the existing system. Customers will choose who they want to supply them with electricity from a list of Energy Service Companies (ESCOs). The ESCOs will be licensed by a New York State agency, probably the NYPSC. Licensing will require them to demonstrate that they are qualified to be energy suppliers. The ESCOs could be utility subsidiaries, independent power producers or power marketers. They will either own generating facilities or contract with power plant owners to supply their customers' needs.

A New York State System Security Operator (NYSSSO) is expected to be formed which will coordinate the movement of electricity through the state to customers. Each ESCO will have to schedule its electricity to be sent from its power plantor the plant it contracted to buy electricity fromto its customers. In most cases that electricity will have to flow over transmission lines from one or more remote locations to the customer. The NYSSS0 will be responsible for coordinating these electricity flows and making sure the power gets to the customer.

In addition, if the ESCO's source of electricity is unavailable for any reason, the ESCO should make arrangements for a backup supply. In fact, the customer should require it. If the supply is interrupted for whatever reason, the NYSSS0 will obtain backup supplies so the customer gets his electricity. The movement of the electricity system after deregulation will be the same as the current system. Utilities will be replaced by ESCOs; and the New York Power Pool, which currently handles coord ffb ination of electricity, will be replaced by the NYSSSO.

Most Customers Will Save

For many, the most important question is how much will I save? While there will be savings for most customers, at this time it is difficult to compute how much the savings will be. Current electricity bills are made up of several components including energy, generating plants, transmission lines, distribution lines and customer services such as meters, meter reading and billing. Competition will allow customers to choose their own suppliers of energy and generating plants. Regardless of who they choose to supply them, the utilities will continue to charge for transmission, distribution and probably some or all of the customer service component. Some of these components could also be deregulated in the future.

Savings will be limited to the energy and generating plant components. A guess as to the level of savings in these two components is probably one cent per kwhr, maybe two cents per kwhr in some favorable cases. Larger savings probably will not occurat least in the short runfor several reasons. First, most utilities currently purchase some energy from low cost suppliers like those that ESCOs would use; so savings of energy costs of even one cent per kwhr will be tough. Second, New York City is a load pocket. There is more load in New York City than can be supplied over existing transmission lines. This means that no matter who supplies a customer, some of the time his electricity may still come from existing (expensive) Con Edison plants located in New York City.

Third, utilities will try to charge customers a portion of their generating plant costs which are uneconomical and therefore uncompetitive. This is called stranded investment. Utilities have argued that they have built these facilities to serve customers and the customers should continue to pay for the part of the cost of these plants that is uncompetitive. How much of this cost is allowed to be passed through to existing customers by the NYPSC will determine how large generating plant savings will be.

Preparation Will Pay Off

It's a good idea to participate in pilot programs, because the more knowledge gained, the more prepared you will be for the real thing. Some ESCOs offer below cost energy so they can gain experience in pilot programs. In fact, participating in a pilot could give you higher savings than you'll get from the real thing. Choose your ESCOs (suppliers) carefully. Choose one with experience delivering electricity in the region. And be sure to ask where the power is coming from and what contracts are in place to obtain the electricity, supply backup and transmit the electricity. In this rapidly changing energy market, knowledge and preparation are key.

Mr. Wagers is manager of electric wholesale marketing at York Research Corporation, a Manhattan-based company that builds and operates co-generation power plants.

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