Universal Service in Competitive Retail Electric Power Markets: Whither the Duty to Serve?

Abstract

This article addresses whether traditional service obligations can coexist with retail competition. A rationale often given for universal service obligations in the telecommunications industry is that universal service, by promoting interconnectivity, enhances network system benefits for all customers. While the network economies argument may have worked to sustain universal service in the face of telecommunications deregulation, it is tenuous when applied to the natural gas and electricity industries. Many reformers look askance at the duty to serve in competitive retail utility service markets, often pointing to conflict between retail competition in electricity and the duty to serve. This article argues, however, that application of extraordinary service obligations to distribution companies in a competitive retail framework can coexist with improved efficiency in retail power markets, although the abandonment of the natural monopoly framework challenges regulators to articulate new rationale for service obligations and to devise new ways of paying for them.