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Short circuit Electricity deregulation blows a fuse
By Cecily Fraser, CBS.MarketWatch.com Last Update: 7:31 PM ET Aug 1, 2000 NewsWatch Latest headlines
SAN FRANCISCO (CBS.MW) -- Efforts to deregulate U.S. electric utility markets are backfiring as rising fuel costs and soaring demand combine to drive up rates in several regions, politicians and consumer activists say.
"What could be worse than doubling prices and having power outages?"
Nettie Hoge, The Utility Reform Network Two years after California opened the door to electricity market competition, consumers in San Diego have seen prices more the double and the San Francisco Bay Area has been hit by blackouts. California's setbacks could be an indication that the worst is yet to come for the 26 states where deregulation is underway, industry experts said.
"What could be worse than doubling prices and having power outages?" said Nettie Hoge, executive director of The Utility Reform Network, a San Francisco-based consumer advocacy group. "You couldn't think of a worse report card."
Low-cost, reliable power was the objective in overhauling the system of electric utility monopolies that generated and delivered power.
California took the early lead, allowing customers to choose electricity suppliers in 1998. Other states with high utility rates such as Rhode Island, Massachusetts, New Jersey and New York followed suit as part of a reform movement that continues to spread.
Under California's deregulation plan, electricity prices were capped at a fixed rate until so-called competitive transition charges were paid off.
The charges, approved by the state Public Utilities Commission, enable investor-owned utilities to pay down debts associated with power plants, power contracts and other obligations incurred to provide electricity service that's no longer needed or isn't competitive in the new market. These charges have been included in the ratepayer's bill.
San Diego is the first city in California to feel the brunt of deregulation after San Diego Gas & Electric retired its plant debts last year, which ended the rate freeze.
That meant the utility could pass along higher electricity costs to customers -- a tough pill for area residents to swallow during peak summer demand. The average bill for San Diego Gas & Electric's has jumped to $105 from $55 last year, according to Ed Can Herik, a SDG&E spokesman.
"The worst is yet to come and people will experience more or less pain depending on the supply and demand curve, but that's the madness of making an essential commodity like electricity subject to the cycles of the market," Hoge said.
The price volatility has captured the attention of consumer advocates and politicians alike. Last week, California Governor Gray Davis called on state regulators to take action to extend the caps on wholesale electric rates.
Meanwhile, the Federal Energy Regulatory Commission will conduct an investigation of electric bulk power markets to determine whether they're working efficiently and, if not, the causes of the problems. Commission staff will report their findings by Nov. 1.
A poorly structured market and the ability of some producers to manipulate supplies continue to threaten electricity rates, said Madalyn Cafruny, spokeswoman for the American Public Power Association, which represents community-owned electric utilities. "There needs to be firm consumer protections put into place."
The APPA said 75 percent of all electricity customers nationwide are served by investor-owned utilities. Another 15 percent receive power from public utilities owned by local governments, and the other 10 percent get power from rural electric cooperatives.
-- Martin Thompson (firstname.lastname@example.org), August 02, 2000