NASEO Wire Charges Analysis Paper

Introduction

The U.S. electricity industry is in the early stages of a fundamental restructuring that is likely to result in a very different set of organizations than those now carrying out the functions of the industry. Neither the final industry structure nor the transition path to it are clear today. What is clear is that the existing regulatory framework and associated industry structure is neither feasible, given various forces of change at work, nor desirable in the view of most market participants.

This paper focuses on the foreseeable consequences of electricity industry restructuring on electric energy efficiency activities and on the use of renewable resources for electricity production. The paper also suggests how energy efficiency activities and renewable resource procurement may be preserved in the transition to a restructured industry.

A basic premise of this paper is that a significant level of electric energy efficiency and continued renewable resource procurement are beneficial to society and desired by the public. Continued public support for improved environmental quality and the search for sustainable development is the basis for this premise. Public opinion surveys regarding future sources of electricity procurement continue to cite renewable resources and greater end-use efficiency as the leading choices.¹ Increased efficiency of energy use and increased procurement of renewable resources are essential steps toward sustainable development.

A major conclusion of this paper is that efficiency levels and renewable resource procurement are not likely to occur in a competitive market. If the societal benefits from efficiency activities and renewable resource procurement are to be preserved, public action must be taken early and remain in place through each phase of electricity industry restructuring.

A brief overview of the factors driving restructuring of the electricity industry is presented in Chapter I. The intent is to provide an insight into the diverse pressures mounting on the industry. Chapters II and III present a view of where the restructuring journey is and where it is likely to go.

The likely consequences of industry restructuring on efficiency activities and renewable resource procurement are discussed in Chapters IV and V. Two possible future industry structures, wholesale competition-retail monopoly and retail competition, are presented as the bounding future structures.

The means to mitigate the negative consequences of restructuring, primarily through a distribution system charge, are discussed in Chapter VI. The potential use of funding from a distribution system charge for efficiency-oriented market transformation is presented in Chapter VII. Various means to support renewable resource procurement, including minimum purchase standards and green marketing, are presented in Chapter VIII. Chapter IX outlines what needs to be done to continue a focus on efficiency and renewables.