Deregulation// A Retrospective

Consumer outrage is on the backside of a movement that many states readily accepted in the late 1990s

but political angst is now more real than cheaper electricity

March 30, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

The electric deregulation juggernaut that swept the nation in the late 1990s has been replaced by a consumer backlash against energy price increases that threatens to reverse free-market reforms.

Lawmakers from Maryland to Montana worry that the deregulation movement they once embraced has failed to deliver the benefits they promised to constituents.

About a third of the 23 states that passed restructuring laws have revisited or delayed those plans, and some - including New Mexico, Arkansas and Nevada - have passed legislation repealing deregulation laws. Some, like Michigan, deregulated in a way that resulted in smaller rate increases, while others are operating under rate caps put in place years ago and haven't felt the effects of unfettered markets.

But as one industry expert put it, the number of people who now say they opposed deregulation is akin to the number of baseball fans who claimed to have been at Wrigley Field in Chicago during the 1932 World Series when Babe Ruth is said to have pointed his bat to the center field bleachers before hitting a home run.

"It was probably 10 times the number of people who could fit in Wrigley Field," said Kenneth Rose, an independent energy consultant who has studied deregulation.

Proponents of deregulation say the consumer and political angst is an overreaction to rising global energy prices that have clouded the debate over whether free-market reforms have benefited consumers.

But those voices have been increasingly shouted down by lawmakers, academic scholars and some regulators, who are raising questions about whether complex rules governing wholesale power markets are structured in a way that does more to line the pockets of power generators than save money for ratepayers.

Though contested by many, the debate directly challenges the contention of electric industry officials and others who say that rate increases sweeping the nation are solely the result of rising fuel prices and are not exacerbated by the rules creating free markets.

Such claims have bolstered consumer watchdogs, who say Maryland and other states would be better off if they hadn't deregulated.

"Deregulation was an experiment, a theory, cooked up by Enron and other lobbyists," said Tyson Slocum, director of the energy program at Public Citizen, a consumer group founded by Ralph Nader. "Legislators just bought into this theory because it sounded great, without knowledge, ... and we are continuing to pay for the politicians' mistakes."

In Delaware, where residential customers face a 59 percent rate increase in May, the state Office of Management and Budget recently issued a report saying that deregulation has resulted in higher prices for customers than would have occurred in a traditional regulated environment. The report is significant because Delaware's deregulation rules are similar to those in Maryland and several other states.

Before deregulation, utilities in both states owned their power plants and delivered energy to customers at a regulated price. As part of the move to free markets, regulators capped electric rates for several years and required utilities to transfer or sell their plants to unregulated affiliates or outside buyers.

In Maryland, the Baltimore Gas and Electric Co. protected itself during a six-year period of price caps by locking in long-term energy supply contracts at rates that allowed it to remain profitable. With those contracts expiring at the end of June, BGE had to lock in new contracts just as soaring natural gas prices pushed wholesale electric prices higher.

Now, state officials find themselves struggling with the same consumer outrage that has spawned a variety of legislative remedies in scores of states.

Delaware is considering a number of alternatives, including plans to phase in rate increases, build power plants and roll back aspects of deregulation in hopes of bringing down prices.

In Illinois, lawmakers are considering a plan to extend rate caps for several more years in anticipation of rate increases this fall, when utilities are set to hold energy auctions to replace expiring power supply contracts, much as BGE did recently. A similar rate cap extension was implemented in Ohio last year as a means of postponing rate increases.

Illinois Gov. Rod R. Blagojevich wrote to utility commissioners last summer, saying that approval of a plan to allow two utilities to hold reverse energy auctions to procure power supply as part of the move toward free markets would be tantamount to "gross incompetence." The agency's commissioner later resigned under pressure and was replaced by one seen as more consumer-friendly.

The dispute echoes the current brawl in Annapolis, where lawmakers have called for Public Service Commission Chairman Kenneth D. Schisler's resignation on the grounds that he has been too cozy with utility officials.

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