Thursday, Aug 21, 2008
Even in the states where electricity deregulation has supposedly worked, there's little choice for consumers and scant savings.
May 24, 2004 | Eric Levis probably knows the ins and outs of electricity deregulation better than his neighbors. As the press secretary for the Pennsylvania Public Utilities Commission, it is his job to know about the new realities of the electricity service environment. But despite all the promises of shiny new markets for power, Levis doesn't shop around.
He did when the program first kicked into high gear in 2000, buying his electricity through an online brokerage that has since gone the way of many other dot-coms. At first, he saved a little money, but no more.
"I returned to PP&L [Pennsylvania Power & Light]," Levis says. "I don't think there's anybody who's offering lower prices."
Therein lies the frayed wire of electricity deregulation, or restructuring, if you prefer the current euphemism. The promise of ending good old home-style regulated electricity service was that an open market would invite lively competition and drive prices down. But that's not exactly how it's working out. It turns out, there just isn't much money to be made competing for the residential consumer. And it also turns out, the utilities are now arguing they need to set higher prices before there's real competition.
In Pennsylvania, electricity restructuring hasn't been the disaster it was in California, but neither has it been the bright shining light its supporters have been promising for decades. And with California's current governor hinting that his state should try the power dance once again, it might be time for a look at what has happened there, and elsewhere.
After California, some states concluded that electricity deregulation was a public policy disaster equivalent to the introduction of New Coke. Others pressed ahead. Among the latter, Pennsylvania became the poster child for supposedly successful restructuring.
Like most of the 16 other states (and the District of Columbia) that decided to pursue restructuring, Pennsylvania had above-average costs. Former utility commissioner John Hangar, who ended up leading the fight for Pennsylvania's plan, says he was first intrigued by the 1992 Energy Policy Act, which began the deregulation of wholesale electricity sales.
"We concluded that Pennsylvania was going to be in the market, of which the wholesale foundation was going to be competitive," Hangar recalls. And by 1998, at about the same time as California was beginning its adventure, Pennsylvania citizens became free to choose who would sell them electricity.
Pennsylvania's plan had similarities to California's: Electricity consumers large and small were to be sprung free from having to buy power from their traditional suppliers; rate cuts and caps were ordered into place; and electricity firms that owned plants that appeared to be worth less than what they cost to build got to walk away risk free by being allowed to stick consumers with the bill in the form of so-called stranded costs. (Studies that tout consumers' savings under restructuring don't always appear to take into account stranded costs -- which may have reached $200 billion nationwide, according to one study.)
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