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In deregulation of electric markets, a consumer pinch
Competition was supposed to lower prices in deregulated states. But faster-rising rates there are spurring a backlash.
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Many states sold their generating stations for a song in the 1990s, she says. Now these same states find that those old plants are a gold mine for their owners and would be very costly to buy back.
Today, 16 of 23 states that initially passed electricity deregulation offer a fully deregulated power system, studies show.
At least 34 states have repealed, delayed, suspended, or have limited retail access to just large customers or are no longer considering deregulating electricity for retail customers, according to a study last year.
Take Montana. It once had the region's lowest electric rates, but sold off its hydro-dams and deregulated in 1997. Some legislators there want the state to buy back those dams. "The power those dams generated for less than $20 per megawatt hour has jumped to over $31 since deregulation," says Don Judge, a political consultant in Helena, Mont. "It's ironic that we sold them in the first place, and now we're paying the price."
Industry defends benefits of deregulation
The re-regulation push worries some industry officials. "Absolutely, we are worried states will try to turn back the clock," Mr. Shelk says. "It would be bad for us, but in [the] long term bad for states, too."
Industry officials have launched a campaign called COMPETE to tout the benefits of competition. And they cite two studies showing that deregulation has saved consumers between $16 billion and $34 billion so far. But other studies by academics and power consumers dispute those findings.
"At best, at this point in time, no discernible overall benefit to retail consumers can be seen from restructuring," wrote Kenneth Rose, an independent energy consultant, in an analysis of deregulation last year.
Consumer anger, others contend, is the surest sign that deregulation has not lived up to its promise.
Disappointment is strong in the PJM wholesale power market, which covers a region with 51 million people in all or parts of 13 states, including Pennsylvania, New Jersey, Maryland, Delaware, Ohio, and Virginia.
In Pennsylvania, which deregulated electricity in 1996, most households are still protected by retail rate caps until 2010. Yet even Irwin "Sonny" Popowsky, the state's consumer advocate on utility pricing and a one-time booster of electricity restructuring, is shaken. "I'm just really disappointed and shocked by the results in places like Pike County, Maryland, and Delaware," he says. "This isn't the way it was supposed to be."
Market prices in New York and New England (except Vermont), where rate caps have come off, are often set by the highest-cost facilities. "These generators all get paid as if they're running a natural-gas-fired machine at double or triple the rate - and that has thrown the equation off," says Gerald Norlander, executive director of the Public Utility Law Project of New York.
Analysts also blame poor competition in residential markets on the higher costs companies incur serving smaller customers. In Ohio, for instance, customers like Mary Babcock want to compare offers from the eight power companies doing business there. But she can't.
