September 19, 2002
The Baltimore Sun
Dan Thanh Dang
Push to deregulate is criticized in study
The federal push to further deregulate the electric industry threatens to cost consumers tens of billions of dollars, according to a study released yesterday by the Consumer Federation of America.
Deregulation so far has unleashed price increases, abuses of market dominance and manipulation of power supply availability, the study found.
Current efforts by Congress and the Federal Energy Regulatory Commission (FERC) to further deregulate the nation's transmission system threaten longtime public policies meant to protect consumers, the study says.
The study, titled "All Pain, No Gain," charges that forcing deregulation on states could create more harm than benefit for consumers, who want and need reliable service at just and reasonable rates.
"Congress needs to take a step back and think a lot harder about what they need to do to restore investor and consumer protections," said Mark Cooper, CFA research director who conducted the study. "State policymakers in seven or eight states and every state moving down the road toward deregulation, outside of the Northeast, have changed their minds."
"For federal regulators to ignore that and force all these entities into the interstate market is a huge mistake," Cooper said. "It's perfectly legitimate to conclude that a regulated model is a legitimate approach to electricity."
Under the regulated system that predominated until recent years, utilities built power plants based on the energy needs of consumers in their service territories. Regulators then allowed companies to charge rates that would recover their costs plus a specified rate of return from users.
Under deregulation, utilities can buy, sell and ship power anywhere. The theory behind deregulation was that competition would lower prices and create innovative products. But developing rules to make those results possible has proved difficult. And determining who has oversight in such transactions is still under debate.
Currently, the FERC is proposing a plan to end state control of power transmission lines and create standard rules for power trading across the nation. Those rules could be in place by March.
Many Western and Southern states have opposed the FERC's Standard Market Design plan for transmission oversight, which would require local utilities to bear the cost of transmission upgrades needed to deliver power to other regions. It would also reduce state regulatory authority.
Concurrently, Congress is debating a new energy policy, which would repeal the 1935 Public Utility Holding Company Act. Repeal of the law governing utility holding companies would also allow energy utilities to invest in risky businesses that could jeopardize the financial stability of the companies, Cooper said. The new law would also demand that the country's consumer and publicly owned electricity systems join regional transmission organizations (RTOs).
Repeal could be a grave mistake, Cooper said, especially after a tumultuous year that included the collapse of Enron Corp., evidence of manipulation of prices during the California energy crisis and the financial meltdown of the electric industry.
The CFA study is supported by consumer groups and many states that have not deregulated.
"If there's a choice between continuing to regulate with an integrated utility and deregulation, the risks are lower if you continue to regulate," said Maryland People's Counsel Michael J. Travieso, who represents the rights of residential utility customers. "Half the states in the country have still not forced or adopted deregulation. In those states, which should come as no surprise, are where the costs for electricity are lowest.
"[Cooper's] position is that the federal government shouldn't force it, and we agree with that," Travieso said.
Federal authorities should also recognize that creating a uniform policy for electricity trading for the entire country is impractical when vast differences exist in population density, resources, regulatory laws and bottlenecks in the grid system used to transfer electricity across state lines, the CFA study says.
"The federal authorities are declaring that one size fits all," Cooper said. "It is likely there will be a great deal of pain for the country if we go down this path."
The CFA study found that under deregulation:
Owners of generation and transmission systems demonstrated the ability to manipulate the market and withhold supplies to drive up prices.
A tenfold increase in power prices occurred in California while costs jumped 20 percent to 30 percent in other parts of the country.
Overcharges for artificially created power scarcity could add as much as 50 percent to the cost of wholesale electricity.
But companies such as Constellation Energy Group Inc. say the highly regarded Pennsylvania-New Jersey-Maryland Interconnection is proof that deregulation and regional power grids can work. PJM runs the largest power grid in North America and guarantees a steady flow of electricity to about 22 million people across five states, including Maryland, and the District of Columbia.