Tuesday, Jul 8, 2008
Defenders of restructuring say it's still been a net gain, and not just for big businesses that buy a lot of electricity.
"You've got to pay attention to the benchmarks," says John Hangar, now president of the lobbying group Citizens for Pennsylvania's Future. He notes that in 1996 Duquesne Light customers in the Pittsburgh area paid 8 cents a kilowatt hour just for power (not counting distribution costs). Now they pay about 6 cents. And Duquesne, having been sharp enough to unload its nuke plants on another firm when power prices were high in 1999, is no longer sticking its customers for stranded costs.
"Lower prices in the wholesale market have flowed through to the customers," Hangar says. "The competitive price for power in Pennsylvania is below what it was before."
But even some advocates of deregulation say lower prices are not inevitable, or even desirable. Jamie Wimberly, president of the
"This focus on prices is probably the wrong focus," says Wimberley. "That's not really what competition is about. What competition promises is more efficient markets, better allocation of resources.
"You might end up paying more" in a restructured electricity market, he says. "There's an equal chance that you see the prices and you can respond to them. You can see what you're paying for and you can make your own decisions."
In other words, when prices spiked, you could instantly conserve. But Wimberly acknowledges that people aren't very likely to turn off their refrigerators when they see electricity prices rise. What he hopes is that a more open market will encourage trends such as distributed generation (that fuel cell in your backyard).
"People will have more choices than just getting their electricity from their local utility," Wimberley says. "Maybe they self-generate or they're in some sort of aggregation program."
But even when deregulated states have marginally lower prices, that doesn't mean that the market is really competitive or that the "free market" is setting prices. More than 90 percent of Pennsylvania's ratepayers, for example, get electricity from default providers, typically their old-line utilities, still very much in business. Retail power prices in Pennsylvania and elsewhere are now largely set by negotiations between power providers and the state. Duquesne is seeking rate hikes that will raise prices to consumers by more than 20 percent by 2008, although the company maintains that it still will be charging less than it was before restructuring.
That's not so surprising, says company spokesman, John Laudenslager. "Until you get to a market situation, where the markets are robust, you're going to negotiate a price and a contract" with the state and the citizens.
Another improvement, Hangar says, is that the PJM power pool -- covering Pennsylvania, New Jersey, Maryland and parts of Northern Virginia -- has an independent board in place to keep the market, such as it is, functioning.
"You need to put in place rules for the market," Hangar says. "All healthy markets have rules. It's not survival of the fittest."
Perhaps the biggest gain, Hangar says, is that power producers are now ostensibly on the hook for their own choices as to what generating assets to build and operate. In theory, at least, there should be no more stranded costs, no more nuclear debacles. You screw up, you're on your own.
"My message is that you have to be vigilant," Hangar says. "After the transition [to restructuring] there's an important role for regulation and regulators.
"Restructuring done right drives both the left wing and the right wing crazy," he adds. "The left wing can't stand the idea of the market being right. The right wing says, Get the government out of the way -- they're the enemy."
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