Over the past ten years a number of states have restructured their electric industry. Under this new structure, retail customers are allowed to purchase generation service at unregulated prices from the provider of their choice and utilities are limited to delivering that generation at a regulated distribution rate. Retail customers who do not choose a generation service provider are supplied under a “Standard Offer” or “Default” generation service that is acquired on their behalf through some form of bid solicitation process. Default service providers have the obligation of making sure that customers understand their generation service options, including risks of switching to an alternative supplier and the costs and benefits of optional “green” initiatives as well as real-time metering programs. Several states have restructured their gas industry in the same manner.

The restructuring of the electric and gas industries in these states has raised a host of policy and regulatory issues. Those issues included the treatment of stranded costs, the design of unbundled services for supply (particularly Standard Offer and Default supply services), distribution, metering and billing, and the establishment of rates for each of those unbundled services. Synapse staff have addressed those issues in over a dozen states.

Now, after several years of operating experience, it is clear that many problems remain. Several of the problems arise from the design of Standard Offer service. Almost all residential, small commercial, and small institutional customers are on such service since generation service providers have not been successful in competing for those customers. One problem with the Standard Offer service is the method through which supply is acquired. The approach to date has primarily been to acquire 100% of the requirements for a six-month or twelve-month period through a single RFP or auction. This approach has led to high supply prices, in contrast to a portfolio management approach which we believe would achieve reasonable prices.

A second problem with the Standard Offer service is that the service providers and distribution utilities have been prohibited from meeting a portion of supply through long-term contracts and/or from acquiring generation capacity. This prohibition has been lifted in a few states and others are considering similar actions.

Synapse’s work on the current problems associated with restructured retail markets includes:

	Exploring strategies and evaluating residential and small commercial basic service procurement processes in Maine, Delaware, Connecticut, and Ohio
	Identifying strategies for responding to dramatic increases in electricity supply costs in deregulated markets
	Preparing a manual on portfolio management that reflects state-of-the-art thinking on integrated resource planning, energy efficiency program planning, and risk management for electric utilities