The Standard Offer: State-by-State Evolution

 

A look at the various approaches regulators have taken to pricing energy in competitive markets, and how some are rethinking those plans.

The states that have implemented electric competition have taken very different approaches to the pricing of utility generation service, and most continue to grapple with the issue.

In Massachusetts, for example, regulators adopted a long-term "standard offer," with a seven-year schedule of gradually increasing prices. Wholesale market prices have risen far more rapidly than the standard offer, however, leaving standard offer prices well below the market price. As a result, Massachusetts has achieved just a 0.3 percent customer-switching rate after two years of competition.

California prices its utility generation service at the Power Exchange price, adjusted for class load profiles, line losses, uplift charges, and uncollectibles. The California approach has the advantage of keeping utility generation service prices in step with fluctuating market prices. However, the price does not include the non-commodity costs of providing generation service, such as customer service, accounting, legal, and an allocation of corporate overheads. As a result, competitive suppliers must compete against a utility generation service that is priced at less than the full costs of providing the service.