Georgia Energy Regulatory Partnership: Technical Assistance on Customer Switching Rules and Supplier of Last Resort Rules

The project was undertaken under a cooperative agreement between the National Association of Regulatory Utility Commissioners (NARUC) and the United States Agency for International Development (USAID). The technical assistance was conducted to assist GNERC in adopting best internal practices and procedures necessary to implement the aforementioned rules. The Consultant performed four tasks under the technical assistance, including drafting an outline for customer switching and supplier of last resort rules, developing draft customer switching rules and supplier of last resort rules, providing on-site technical assistance to review draft rules, and finalizing the rules documents. The Consultant made two one-week trips to Tbilisi, Georgia, during which he presented draft rules documents to GNERC staff, stakeholders, and commissioners. The key accomplishment of the technical assistance is that GNERC generally agrees with the supplier of last resort and customer switching of supplier rules and is prepared to implement the rules documents once primary legislation is brought into compliance with EU requirements. The rules documents could solve a number of immediate problems that have arisen in the gas sector, where supply is unbundled from distribution operations. GNERC has expressed concerns about subjecting retail customers to the full cost of power as determined by the market price, the volatility of market prices, and the complexity of the market. The Consultant shares this concern and believes it necessitates gradual opening of the Georgian electricity market to competition. GNERC believes they can implement the SOLR and customer switching rules, but they have no concerns about implementing the necessary procedures. However, they believe transitional measures will be necessary, including the use of a public supplier or dedicated generator to meet the needs of small customers in the initial period following introduction of retail competition. The Consultant has also discussed the possibility of supplying customers who do not choose a supplier at a regulated tariff that is above the market price, providing customers the incentive to switch to a competitive supplier. However, this approach violates the principle of cost-based tariffs, and choosing the appropriate margin above the market price can be difficult. The Consultant informed GNERC that a supplier of last resort selected through a competitive solicitation consistent with EU best practice would likely result in a price higher than a competitive supplier's price anyway because a supplier of last resort requires a higher profit margin to compensate for its higher risk. The technical assistance has resulted in the development of rules governing customer switching and supplier of last resort, as well as a report on best practices and implementation of the supplier of last resort and customer switching rules. The rules documents have been submitted to NARUC and USAID in final form.