Electricity Deregulation = Pay More; Get Less

[Rob Schaap <bantam@xxxxxxxxxxxxxxxx>]

Electricity deregulation called failure

Report: States that have revamped paying higher rates for poorer service
http://www.boston.com/dailyglobe2/243/business/Electricity_deregulation_called_failure+.shtml
By Peter Howe, Globe Staff, 8/31/2001

Electric-industry deregulation has been a costly failure in the United States,
a consumer group charged in a report yesterday that cites soaring power prices
in Massachusetts and other states.

Consumers in states such as Massachusetts, where the industry has been
restructured, are generally paying much higher prices and getting less
reliable service than states that kept utilities as regulated monopolies that
own their own power plants, the Consumer Federation of America said in a
29-page study. The group urged states to drop or slow down deregulation plans
until federal officials overhaul electric-industry oversight.

                      Mark N. Cooper, the group's research director, said the
27 percent jump in average electric bills in Eastern Massachusetts over the
past 20 months is one of the leading examples of how electric deregulation has
failed to deliver the promised savings.

''As states like Massachusetts that moved early to deregulate come out from
price caps and start going to market [prices], consumers are getting
clobbered,'' Cooper said. The state's 1998 restructuring law
promised an inflation-adjusted 15 percent rate cut for customers, but last
year's soaring energy prices have more than wiped out the initial savings.

Citing everything from soaring Bay State electric rates to 300 percent
increases in California wholesale prices, and big rate jumps in deregulated
states including New York, Montana, and Pennsylvania, the
report said: ''Any state that has not restructured should not. States that can
slow down or stop should do so.'' Twenty-two of the 50 states are currently at
some stage of restructuring their electric industries.

Cooper said federal regulators need to push for improved transmission networks
subject to stronger public oversight and more effective punishment for
generating companies and power brokers that attempt to manipulate the market
as some have in California. The group said many markets, including New
England's, are at high risk for price gouging because there are not enough
competing companies and not enough surplus generating capacity to promote competition.

The Washington-based Electric Power Supply Association, which represents power
sellers such as Enron Corp. and Reliant Energy Inc., said some of the report's
findings on prices are not surprising, because states that moved first to
introduce retail competition tended to be those that had the most expensive
power in the first place.

''It's still too soon to analyze the effects of retail competition because it
really has yet to take hold in almost any state,'' said association spokesman
Mark Stultz.

Stultz said an EPSA study released earlier this summer that polled 60
utilities nationwide found a 36 percent overall decline in ''delivered
electricity prices'' for 1985 through 1999 as competitive wholesale
markets for power were created. But the consumer federation said the
experience of Massachusetts and other states suggests that ''retail
competition for electricity may not be workable, certainly not for small
residential and commercial customers.''

Material from Bloomberg News was used in this report. Peter J. Howe can be
reached by e-mail at howe@xxxxxxxxxx

This story ran on page C1 of the Boston Globe on 8/31/2001.
© Copyright 2001 Globe Newspaper Company.