Previous papers presented in the Direct Access Working
Group (DAWG) process discuss facets of the advantages of UDCs
compared to other organizations for metering, communication systems,
and bill processing decisions. Some have observed that the advantages
ascribed to a UDC are the advantages of a monopoly, and that a
standalone INFOCO monopoly would have equivalent or greater advantages.
This paper broadens that previous discussion to compare several
organizational models and discusses advantages and disadvantages
of each.
There are at least four different organizational
models that could be used to provide metering, communication services,
and data processing for electricity consumers. These are essential
services, both for the commercial operation of a specific direct
access transaction as well as for a broader direct access market
which includes aggregators, but also for the remaining regulated
monopoly distribution functions. Each organization has some advantages
and some disadvantages. The following section summarizes four
models which will be assessed in the next section of this paper.
The Energy Service Provider
The energy service provider (ESP) is a natural consideration
for metering, communication of metered information, and data processing
to render a bill. These activities are a natural function of a
commercial business. In this case, however, the ESP may only be
obtaining approximately one half of the total electricity revenue
for some small customers, with revenues for distribution system
fees, public benefit programs, and CTC requirements easily surpassing
the ESP energy bill in early years of the direct access period.
The existence of these sizeable revenue flows raises various questions
about the appropriate role of the ESP in performing this portion
of component services.
Several Competitive INFOCOs
A commercial firm that meters, routes data, and renders
bills for other organizations is an attractive option. It provides
opportunities for economies of scale that would not be possible
by individual energy service companies. It also addresses concerns
about competitive advantage of one supplier versus another, since
the INFOCO would be neutral with respect to provision of energy.
The Electric UDC
From the perspective of metering, communication systems,
and bill processing, an electric UDC could be imagined to have
the same responsibilities as the current IOU. It would be a regulated
monopoly that provides all component services of the distribution
function. CPUC D.95-12-063 could be interpreted to say that all
of these component services remain the exclusive role of the UDC,
unless and until the CPUC makes other decisions in the unbundling/rate
design aspects of restructuring.[2]
An INFOCO Monopoly
A regulated, monopoly form of INFOCO is a universal
metering, data collection, and potentially bill processing monopoly
that exists separate and distinct from a LINECO that provides
electricity distribution wires, substations, and maintains these
physical systems.[1] INFOCO could be organized in a variety of
ways, but extending its services function into multiple energy
(electricity, natural gas) and other commodities would make the
greatest sense. Thus, a single INFOCO could readily address electricity,
natural gas, and potable water. INFOCOs could be imagined to have
standalone communication systems to customer premises or to use
telecommunication systems already in place, such as those for
telephone service or for cable television.
The four attached tables compare the four organization types for:
(1) general organizational features
(2) metering,
(3) data communication, and
(4) bill processing.
Each table attempts to present facets of how each
organization would carry out specific activities under the general
category in question. Advantages and disadvantages of each organization
in accomplishing these activities are stated.
Results
In general, these comparisons support the following
ranking of organizations from most poorly equipped to best equipped
to perform these component services -- energy service providers,
competitive INFOCOs, UDCs, and monopoly INFOCO. In general, this
ranking is highly influenced by progressively reduced costs of
systems per customer by providing similar functions for related
commodities and thus allocate fixed costs over a greater number
of units.
The commercial organizations tend to have advantages
associated with the inherent pressures of the commercial market
to reduce costs relative to competitors. The universal organizations
tend to have questions concerning their incentive, either through
PBR or other mechanisms, to reduce costs.
Conversely, the very cost cutting pressures that
are attractive for commercial firms also lead to questions about
their ability to carryout functions that provide benefits to others,
either providing data to UDCs or their ability to be helpful to
the customer after the customer switches to another supplier of
energy.
A crucial issue is whether the metering and communication
technology choices that competitive firms would make preclude
certain technologies that are highly attractive, but that may
require very high saturations among customers to be cost-effective.
Once a certain threshold of saturation is reached, however, these
technologies have clearly superior qualities that would be desired
by virtually all customers. Thus there may be a dilemma about
metering and communication systems decision-making in which the
usual tendency to entrust decision-making to the market may not
provide the best solution.
Finally, the monopoly forms of organization -- electric
UDC and monopoly INFOCO -- would also be more likely to be provided
certain privileges concerning data privacy that competitive organizations
would not be allowed.
| FUNCTION | Energy Service Provider | Competitive INFOCO | Electricity UDC | INFOCO Monopoly |
| a. Organizational Focus | bilateral contract supplier or aggregator oriented to generation supplies | firm limited to metering, communication systems, and data processing | with other shifts from IOU to UDC, this remaining function is more important and visible | organization is limited to metering, communication systems, and data processing |
| b. Technology Expertise | no connection to previous industry history and multiplicity of vendors | likely to be able to acquire and retain specialized personnel | able to retain and utilize specialized metering and bill processing capabilities | could easily include "spin-offs" of utility personnel, equipment, and software |
| c. Coordination Among Multiple Data Users | coordination required to provide data outside of firm to UDC, ISO/SC, government | coordination required to provide data outside of firm to UDC, ISO/SC, government | individual customer data need not be released, just aggregates | universal coverage facilitates data handoff to other organizations |
| d. Consumption History | tends to view customers afresh as they begin relationship | energy supplier switch not necessarily INFOCO switch | relatively easily to maintain histories of sites within UDC | universal coverage easily maintains consumption histories |
| Advantages | - meter and data storage choices likely to be under strong cost pressure
- technology diversity may introduce new products faster | - competition among INFOCOs will induce cost reduction pressures
- technologies introduced as competitive factor - scale economies exist | - universal coverage reduces costs per unit
- easy to switch supplier - minimal changes to privacy statutes for usage data - easy regulatory oversight - competitive suppliers are suspicious of affiliate favoritism | - lowest cost per unit by having broadest geography and multiple commodities(elec, gas, water)
- no change when energy supplier is switched - easy regulatory oversight - multi-site customer is no problem |
| Disadvantages | - problems with supplier switch
- more difficult to assemble timely statewide data - some poor performing technologies or business practices selected - difficult to ensure compliance with privacy of usage data | - may have to coordinate among INFOCOs when suppliers switched
- problems with assembling statewide data on timely basis - difficult to ensure compliance with privacy of usage data | - multi-site customers face data coordination concerns
- reduced pressure for cost reduction or technology innovation - minimal disruption of current UDC functions | - the least cost pressure or need to introduce technology
- potential for disruption when UDC functions shifted to INFOCO and reconciled - probably requires statutory changes concerning privacy |
| FUNCTION | Energy Service Provider | Competitive INFOCO | Electricity UDC | INFOCO Monopoly |
| a. Usage Measurement | measure what contract terms, UDC, and ISO require | each INFOCO determines how to satisfy customer, UDC, and ISO interests | standard and optional service, and meets UDC and ISO needs | equivalent to UDC |
| b. Recording Usage | uses in-meter, standalone data storage devices, or communication system equipment, that ESP selects | likely to have a standard approach throughout its customer base, except as communication technology dictates differences | a generally uniform approach across the entire service area, with perhaps customer class differences based on different meters/communication systems | a multi-commodity monopoly would use data storage technologies that encompass all commodities it services |
| c. Meter Certification | meets minimum standard through its own staff or contracting out | large scale meter shops minimize certification and repair costs of operations | very large scale meter shops minimize certification and repair costs of operations | equivalent to UDC |
| d. Meter Inventory Management | conducts this as a business decision of the ESP | large operations can facilitate inventory control | large operations can facilitate inventory control | equivalent to UDC |
| Advantages | - meter and data storage choices likely to be under strong cost pressure
- technology diversity may introduce new products faster | - competition among INFOCOs will induce cost reduction pressures
- technologies introduced as competitive factor - scale economies exist | - universal electricity scope reduces meter costs per unit
- reliance on utility staff - easy to switch supplier - easy regulatory oversight - easy coordination with ISO and/or SC | - universal coverage ensures lowest metering, on-site data storage costs
- highest competency of personnel and advantages in dealing with vendors |
| Disadvantages | - low scale economies
- more difficult for customer to switch energy suppliers - greater likelihood of equipment problems - lower competence of O&M personnel | - lack of universality may still preclude some technologies
- shift in energy provider may still lead to switch in INFOCO - coordination of the information to ISO and/or SC | - weak cost reduction pressure
- higher costs than INFOCO because natural gas and other commodities excluded | - weak cost reduction pressure
- weak technology innovation pressure, tendency to be static |
| FUNCTION | Energy Service Provider | Competitive INFOCO | Electricity UDC | INFOCO Monopoly |
| a. Electricity Price Downloading | ESPs have no specific ability to report PX RTP signal | INFOCOs would provide range of services to DA and UDC energy customers | UDCs would provide range of services to customers, perhaps differently between DA and UDC energy customers | multiple commodity price signals or additional information channels would |
| b. Non-price Signalling | ESPs obtain no specific benefits from downloading system signaling data to customers | INFOCOs would have to be compensated by customer or ISO for provision of signaling communication capability | D.95-12-063 in conjunction with UDC PBR may provide incentives for UDC-based communication systems | - UDC arrangements; plus
- can accommodate ISO/INFOCO arrangements for nonprice signalling |
| c. Usage Uploading | ESP routes data to UDC for its separate use in billing and analyses | INFOCO would route data to its own billing unit or to service providers at their option | UDC would route data to its own billing unit or to service providers at their option | able to upload multiple commodities (elec, natgas, water, sewer) on shared communication system |
| Advantages | "plain vanilla" systems might better match some supplier and customer relationships | - large customer base improves scale economies compared to ESPs | universal customer coverage reduces costs compared to partial systems | - further reduction in costs for electricity compared to standalone electricity system by allocating costs across other commodities
- completely resolves any problems with switching energy supplier |
| Disadvantages | - small scale systems or rents of public communication systems will increase costs
- some communication systems precluded by low saturation - communication systems complexities likely to exceed resources/competencies of energy suppliers - energy provider shifts can be difficult | - some technologies may still be precluded by low saturation
- dedicated systems likely to be underutilized, thus increasing costs per unit - competition might result in loss of market share and demise of firm with disruption to customers - energy provider shifts diff. | - multi-site customers across two or more UDCs still have data issues
- multi-commodity systems still not feasible for electric UDC ownership/control | - once universal coverage implemented, monopoly status might induce no technology innovation |
| FUNCTION | Energy Service Provider | Competitive INFOCO | Electricity UDC | INFOCO Monopoly |
| a. Billing | ESPs provide billing for their own services and could either provide billing of UDC services or pass needed data to UDC | INFOCOs would attempt to provide consolidated billing for both ESP and for UDC | since UDC has revenue requirements, it would logically wish to provide combined bill for commodity usage, distribution services | - equivalent to UDC
- INFOCO could choose whether to bill consumers directly, or to provide data to service providers |
| b. Collection/Credit | ESPs have standard commercial arrangements for extending credit, collecting debts | INFOCOs have standard commercial arrangements for extending credit, collecting debts | IOU has several collection advantages by statute compared to standalone, competitive firm, but unclear whether these transfer to UDC | ambiguities are equivalent to UDC, but INFOCO likely to be granted greater privileges than private firms |
| c. Analyses | ESPs would provide analyses of customer's usage to the extent part of contract or customer paid for services | - INFOCOs would have incentive to offer analytic services to increase revenues and use larger customer base for comparisons | universal coverage allows UDC to compare one customer to all others | equivalent to UDC |
| Advantages | ESPs have incentive for rapid, accurate billing of their customers | - INFOCOs would have to be fast, accurate to obtain/retain business
- somewhat improved ability and much better incentive to perform consumption analyses - greater options for customer data privacy | - universal coverage reduces costs if PBR incentive structure works
- could be allowed to retain customer credit/collections qualities of IOUs - current data privacy provisions easily switched to UDC | - universal, multi-commodity coverage should minimize costs compared to other organizations
- data privacy solutions common for multiple commodities |
| Disadvantages | - commercial credit terms
- collection capability inferior to IOU - ability to provide analyses and maintain history inferior - data privacy concerns | - credit/collections issues similar to ESPs
- improved but still limited analytic abilities - data privacy concerns | - does not have cost reduction pressures from competition
- costs still not as low as multi-commodity INFOCO | - universal monopoly may not have cost reduction pressures
- IOU data privacy, credit, and collections treatment would have to be modified |
[1] LINECO and INFOCO are terms that were popularized by Prof.
William Hogan, in his September 1994 paper describing various
ways that the electricity industry might be reorganized along
functional activities. The most well known term is POOLCO, which
the CPUC adopted in the special form of to two independent organizations:
(1) the independent system operator (ISO) that dispatches previously
scheduled powerplants to maintain system reliability, and (2)
Power Exchange (PX) which takes load schedules and obtains from
a set of generator bids the least market clearing price where
supply and demand are in balance.
[2] The CPUC sanctioned examination of further unbundling of the UDC distribution function in D.96-03-022, but the efforts of utilities and a recently formed working group are not likely to lead to further CPUC unbundling decisions in the near term. In fact, CPUC decisions and assigned commissioner rulings have not yet established a schedule for the completion of unbundling efforts of the working group, let alone a process for resolving this major issue.