Deregulation of electricity called a failure

Report is seeking return of state-regulated power

July 31, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Nearly a year after the worst blackout in U.S. history, a national advocacy group says the nation's electric system is becoming increasingly less reliable while costing consumers more, and called for a return to regulated markets.

In a report released yesterday, the National Association of State Public Interest Research Groups called on policy-makers to rein in electric deregulation, which is being implemented in various stages in about 20 states.

The advocacy group also wants to see mandatory reliability standards for electric grid operators and increased energy efficiency, partly through the development of renewable energy sources.

The association said that the deregulation of the power industry that started in the 1990s - promoted as a way to lower costs through a competitive market - has instead led to less accountability on the part of utilities and energy companies and higher bills for consumers.

The shifting market helped contribute to the California energy crisis of 2001 and the blackout last August that left more than 50 million people in the dark in the United States and Canada, said Rob Sargent, senior energy policy analyst for the national association. He was co-author of the report, which sought to take a hard look at the state of the electric system from a consumer's viewpoint.

"The reliability of the electric system has suffered under restructuring," said Tony Dutzik, an association policy analyst and the report's primary author, in a conference call yesterday. "Voluntary compliance with reliability rules no longer works."

A spokesman for the Edison Electric Institute, an association representing investor-owned electric companies, said the industry disputed many of the report's claims and criticized what it called its "alarmist tone on reliability."

`Second to none'

"Our electric power system is second to none, and our industry has taken great strides in reinforcing that level of reliability since last August's blackout," said Jim Owen, the spokesman for the group, which is based in Washington.

Owen believes that wholesale electric competition benefited customers nationwide, but that the transition to retail competition in many states is still in its early phases.

Proponents of deregulation say that prices have initially increased as a competitive market is established because rate caps kept them artificially low. Eventually competition will drive rates down, they say.

But the report argues that a decade of industry restructuring has led to few benefits for the majority of consumers, and that any benefits will likely be short-lived.

While residential electricity rates declined 18.3 percent in inflation-adjusted terms between 1993 and 2002, mostly because of lower wholesale coal prices, they started turning upward in 2001, the report said. Between 2001 and 2003 they registered the first year-to-year increases in nearly two decades, the report said.

Md. is example

Dutzik gave Maryland as an example, where rate caps were lifted in some parts of the state this summer, boosting utility rates in some cases by double digits.

"It's time for states to end experiments in retail deregulation," Dutzik said. "Sustained competition has not developed anywhere, and we believe it will not develop. Everyone ought to have access to regulated products available to them at the lowest overall cost. We need to return to the notion that electricity is a public necessity, and public policy should promote the greater good."

Peter A. Bradford, a former chairman of the New York Public Service Commission and a former president of the National Association of Regulatory Utility Commissioners, generally agreed with the report, especially the findings that policy-makers have tended to undervalue energy efficiency.

"The public benefits for the consumer and the environment need to be locked in as firmly as the benefits for other players," such as large industrial customers, he said.

Mandatory standards

Ellen P. Vancko, director of communications for the North American Electric Reliability Council (NERC), which oversees grid operators across the country, said the organization wholeheartedly supports the call for mandatory reliability standards governing the nation's power grid.

"Deregulation is causing the grid to be used in ways that it wasn't designed for - that's a true statement," Vancko said. "And this increased use of the grid has increased the strain on it, making it more important than ever that people follow the rules."

The report's recommendation on this one point "is consistent with what NERC has been seeking," Vancko said.

Sun staff writer William Patalon III contributed to this article.

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