Deregulation drive running out of gas

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California’s disaster plays spoilsport

The Washington Times

California has seen no rolling electricity blackouts since late April and has even had to sell off surplus power. But the fallout from the state’s energy mess is nevertheless stalling the power industry’s national drive toward deregulation, even stopping it in some places.

States like North Carolina, Alabama, Colorado, Indiana and West Virginia, where legislative initiatives toward deregulation were well under way before the California mess began making national headlines, now have seen proposed bills pulled back and study commissions formed instead.

Since March, Nevada legislators repealed a “customer choice” law allowing businesses and consumers to choose the source of their electricity less than two years after passing it, and in Oklahoma, legislators voted down a deregulation plan that once had looked like a lock for passage.

And critics of deregulation are having a field day. “Nowhere has a competitive electric system actually reduced prices for consumers,” said Charles Acquard, executive director of the National Association of State Utility Consumer Advocates. “The only way consumers have enjoyed lower prices is where it is mandated by law. When those price caps are lifted, what’s going to happen?”

In California, price caps did lower consumer bills for almost two years before the crunch hit last winter. But once shortages struck, prices skyrocketed to levels double or triple what they were before deregulation, in spite of provisions of the 1996 deregulation law that supposedly forbade any price increases until March 2002.

Even in Ohio and Michigan, where ongoing deregulation plans allow consumers to choose among power suppliers, the California headlines are cooling public response.

“The chaos in California has affected customers’ opinions,” said Robert Tongren, a lawyer for the Ohio Consumers Council, a state agency. “They look at the newspaper or turn on the television and hear about blackouts in California. They’re extremely concerned about whether Ohio will be another California.”

In fact, California’s bloodied deregulation plan also featured consumer choices – but they are no longer available and almost all customers who initially opted to switch away from mainstream utilities are back with companies like Southern California Edison and Pacific Gas and Electric.

Utility industry lobbyists fighting for deregulation now regularly distribute literature detailing how plans considered for other states differ from the California approach. The main difference: Plans in other states call for retail price caps to last longer than the three years they were supposed to be in place in California.

“That’s highly ironic,” says Doug Heller of the Foundation for Taxpayer and Consumer Rights, a major anti-deregulation group in California. “The power generators spent months criticizing the California plan for having any retail price caps. They said that was why PG&E went bankrupt and Edison is close to it. Now they’re saying long-lasting price caps are a strong point of plans in other states. Look, if the generators cut down supplies, as we believe they did here, no retail price cap can stay in effect for long.”

So far, no investigation has proved such collusion.

Advocates of deregulation insist it was the California approach, not the principle of free markets in energy, that has proved flawed. “The California model failed, not the concept itself,” said Elizabeth Moler, senior vice president of the Exelon Corp. power company and a former chairman of the Federal Energy Regulatory Commission, at a recent conference in Washington, D.C. The California law compelled big utilities to sell off fossil-fueled power plants to the highest bidder. Most plans now considered for other states contain no such requirement.

But those assurances have so far not allowed the deregulation trend to regain its former momentum.

“California is causing other states to be much more cautious,” said Joseph Cerrell, a Los Angeles political consultant. “There’s a slowdown all over, and increased awareness that this thing isn’t as simple as some folks thought it was.”

Consumer Watchdog
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