1 Priority 1 = Price Competition Retail price to compare in PA provides for real competition. Wholesale price to compare in CA means few switchers.

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Presentation transcript:

1 Priority 1 = Price Competition Retail price to compare in PA provides for real competition. Wholesale price to compare in CA means few switchers.

2 Creating a Vibrant Retail Market The threshold issue is price competition ä drives suppliers into the market ä drives customers to go shopping Two fundamental questions: ä what price does non-choosing customer see ä can default supplier exert market power

3 Pennsylvania Price to Compare Many suppliers offer residential choices

4 Price Competition & Public Policy Price to Beat (Shopping Credit/ Back-out Rate) Rate Cut / Rate Freeze PRICE COMPETITION Default Service STRUCTURE & PRICE (POLR) Stranded Cost Recovery (CTC) Each of these policy decisions affects the others and the potential for retail price competition.

5 Wholesale v. Retail Supply Costs * Savings based on a 800 kWh/month usage with an 8cents/kWh default service rate, saving 4% on wholesale and 12% on retail costs.

6 Market Power Mitigation Matters A Default Supplier serves all non-choosing customers at a lower cost than competitors ä no marketing costs ä no switching costs ä instant economies of scale - retail and wholesale Retail market power can be exerted 2 ways ä control prices - either high or low ä prevent entry of competitive suppliers

7 Default Service Provider Spectrum California: Regulated, utility default service Pennsylvania: Partial competitive bid after market opening Maine: Full competitive bidding before market opening Texas: Regulated, utility affiliate default service Atlanta Gas: Default service shared by all marketers More Competitive

8 Default Service Pricing Spectrum Market indexed wholesale price - CA Administratively set retail price - MA No default service: retail market price - AGL More Competitive Administratively set retail price, fuel adjusted - TX Market bid wholesale + administrative retail adder