Consumer choice and energy competition should fare well under the new administration of President Barack Obama, as the administration focuses on green energy and smart grid applications, two industries dominated by new entrants and other merchant players not tied to monopoly, franchised utilities.
The recently passed economic stimulus bill contains a number of initiatives to promote smart grid and advanced metering technology, both of which are keys to increasing energy efficiency and reducing energy costs. So-called "smart meters" which can interact with home appliances to show customers the exact energy usage and savings from different activities are one of the keys that allow competitive energy suppliers to offer customers innovative and unique products, which can save customers money. Total smart grid funding in the stimulus is $11 billion.
Texas is ahead of the nation in this regard, as both Oncor and CenterPoint are rolling out smart meters across their service territories. However, other states which had not yet undertaken smart metering initiatives are reacting to the stimulus funding for smart grid applications, and are ramping up advanced metering efforts.
The New York Public Service Commission, for example, recently codified advanced metering protocols which give the green light to utilities to file applications for smart grid programs, to ensure New York is eligible for federal stimulus dollars. Since New York is the second most vibrant competitive energy market next to Texas, utility rollout of smart meters will greatly benefit competitive energy providers, and their customers, by opening the door for a number of new energy products, and competition based on innovation.
Meanwhile, Obama's pick to head the Federal Energy Regularly Commission (FERC), at least on an interim basis, is a supporter of customer choice and markets. Jon Wellinghoff, who has been at FERC since 2006 and was recently named acting Chairman, said at the COMPETE-EPSA forum in 2007 that he has become a "convert" to markets, and believes they are needed to achieve FERC's mandate of just and reasonable rates.
Wellinghoff is a big supporter of green energy and demand response, and sees customer choice as essential in achieving both goals. Without a competitive energy market, consumers may not receive choices for alternative and green energy, as monopolies don't have to cater to customer demands as competitors do. Demand response, which occurs when customers reduce their loads at peak times in exchange for a payment to prevent the most expensive power plants from running, is most efficient when customers reducing load can interact directly in the market on equal footing, and don't have to go through a monopoly utility to participate.
For these reasons, Wellinghoff is expected to continue FERC's decade-long policy of promoting competition in the wholesale electric market, including the use of so-called Regional Transmission Organizations (RTOs) to promote open access to the nation's electric grid. RTOs serve to act as exchanges where competitive generators and other suppliers interact and buy and sell energy.
In RTOs, an Independent System Operator runs the transmission lines of member companies, instead of the monopoly owners. This ensures equal access to the grid, and that undue preference is not given to incumbent companies over new competitors. For the wind industry, which is dominated by merchant generators, this means green developers flock to RTOs so their green energy is not kept off the grid by having access denied by an incumbent competitor using traditional fuel. In fact, about 73% of wind resources are located in RTO markets, despite the fact that only 44% of wind energy potential is found in those areas. Given the new administration's focus on green, RTOs and energy competition are here to stay.