http://www.copleynewspapers.com/heraldnews/top/j04power.htm

Energy deregulation — taking a second look

California: Woes make other states cautious

THE ASSOCIATED PRESS

TULSA, Okla. — When California started going dark with rolling blackouts, unnerved Oklahoma lawmakers took another look at their state's electrical deregulation plans — and rethought the proposals.

In North Carolina, legislators blamed California's power crisis in saying they'll go no further this year toward opening electric markets to competition. And Vermont Gov. Howard Dean thanked lawmakers for blocking his push to deregulate 3 1/2 years ago.

How long did it take to change Dean's mind?

"About 5 minutes once I saw what was happening in California," he said.

Despite assurances that California's pitfalls are avoidable and that deregulation is working in other states, the Golden State's flickering lights are setting off alarms in more than a dozen states considering moves to let consumers comparison-shop for electricity.

24 have moved since 1996

Twenty-four states and the District of Columbia have approved deregulation laws since 1996, but more than half of those have yet to open power markets to all consumers, the federal Energy Information Administration says. Some are gradually phasing competition in; others now are balking because of California's troubles.

The deregulation movement caught hold in the mid-1990s, when natural gas prices were low and there was excess power to sell. Rhode Island was the first to allow retail power competition, just ahead of California, in 1998.

Now, "California has spoiled the restructuring well for every state that's considering it," said Pete Churchwell, president of American Electric Power-Public Service Co. of Oklahoma.

That's despite the success some other states have seen. Pennsylvania approved deregulation a few months after California, but with some key differences.

California's plan pushed utilities to divest their generating plants while forcing them to buy power on a volatile spot market. Rate caps prevented utilities from passing on skyrocketing fuel costs to consumers.

Pennsylvania utilities, however, had the option of divesting plants and also are free to enter into long-term contracts, which have served as a buffer to price spikes in the spot wholesale market.

And Pennsylvania set its "price to compare" — a base rate provided to consumers for comparison shopping purposes — high enough so new companies could offer competitive rates, said John Hanger, a former member of the state Public Utility Commission and now head of a group called Citizens for Pennsylvania's Future.

No incentive to shop

California's equivalent was set so low that customers had no incentive to shop around, he said.

Officials in other states, such as Maine and Maryland, point out that unlike California they are easing into deregulation with plenty of power on hand and more plants in the works.

"California entered this with a stressed system to begin with," said Matthew Brown, who runs the National Conference of State Legislatures' Energy Project.

Texas, for example, has built 22 power plants since 1995 and has 15 more under construction. The Lone Star State expects to add at least 10,000 megawatts of power by next year, when deregulation is scheduled to begin, Brown said. California added only 600 new megawatts in the past decade.

No state expects to see a repeat of California's widespread catastrophe, but vulnerabilities exist.

Real competition has yet to grab hold in most states because there's still plenty of regulation left in deregulation, Brown said. Rate caps and phase-in rules have limited the development of competitive retail markets.

And electric providers will continue to be subject to the whims of the soaring natural gas market because most new plants nationwide are gas-fueled, he said. Even in Pennsylvania, high natural gas prices are pushing up costs for alternate providers and driving some residents back to their old utilities, where rates are capped.

New England's strained power system could be just a hot summer away from coming up short, said Steven Ferrey, a Boston law professor and author of two books on electric market regulation.

New plants are under construction, but 6,000 megawatts of new power aren't scheduled to be available until the summer of 2002, he said.

-- Swissrose (cellier@azstarnet.com), February 05, 2001

Answers

There is something troubling about this, and most other articles, from the news services and local papers concerning the California power problems. It is the misuse of the term "deregulation". It is difficult or downright impossible to carry on intelligent discourse, if important words are not used in proper context. There are three apparent reasons why a word can be misused: 1. the person using it does not know its meaning, 2. he/she is not familiar with the process which it describes, or 3. it is deliberately misused to promote an agenda.

Deregulation means to free from regulation (esp. government), decontrol. The implication is clearly that whatever is deregulated, is not subject to control, enjoys an unfettered opportunity to benefit (particularly financially) from its activities.

What happened in California, and is now misnamed "deregulatio", is better identified as "reregulation" or "resturucturing". The process which took place changed the way the electric power is generated, delivered and sold to consumers. Without going into all the nuances, consider only a few very important results of the restructuring. Utilities (retailers, like PG&E) were required to sell to other companies the generating plants they owned. They were prohibited from buying power by long term contract and had to purchase on the spot market on a short term basis. Worst of all, the price the utilities can charge consumers was set by the state but the generating companies can charge the utilities whatever price the market will bear! The result, the utilities have to buy high and sell low, a recipe for the ongoing financial disaster.

The third possibility is that the term "deregulation" is being used to advance an agenda, to demonize the word, to instill in people's minds the evils of free markets, free enterprise and a free economy. This could have two objectives; pave the way for more, not less regulation and discourage other states from whatever plans they might have to genuinely deregulate. The California politicians are already moving to more state control. And, references abound in postings here of other states having second thoughts about the wisdom of following California into the unchartered waters of utility "deregulation". Well, following California would be folly, but don't call what happened "deregulation".

-- Warren Ketler (wrkttl@earthlink.net), February 05, 2001.