Defrocking electric deregulation's cheerleaders

By Camille "Bud" George

It's time for deregulation's cheerleaders to acknowledge the flaws in the electricity market and cooperate for real solutions instead of pretending everything is fine or blaming customers for being too lazy or too ignorant to shop.

Yet, those who brought us electric deregulation are taking another approach -- reinventing the promise into one that can be kept.

Deregulation proponents railed more than a decade ago against government inefficiency and high rates and for market competition and low rates. However, the facts from the U.S. Department of Energy are irrefutable -- average electric rates in deregulated states are more than 50 percent higher -- 13 cents/kWh -- than the rates in regulated states -- 8.4 cents/kWh.

So much for lower prices.

Pennsylvania is not yet a fully deregulated state because rate caps remain in some areas, so it might be a bit premature to declare that deregulation failed in Pennsylvania. However, all signs point to it.

When rate caps in Pike County expired in 2005, the overall rates rose 79 percent. Deregulation proponents called it an aberration.

On Jan. 1, electric-generation rates shot up 30 percent for most of PPL's 1.4 million customers. The rates would have increased by 70 percent, according to energy analysts, but for the damper on prices caused by the worst recession in many decades.

Rates for Penelec customers in Clearfield County are projected to increase dramatically when rate caps expire on Jan. 1, 2011.

Evidently, the spike in Pike County wasn't an aberration, but a sign of things -- and prices -- to come.

Deflecting the failed promise of lower rates, deregulation proponents now sing a different tune, including, "Deregulation brought competition" and "Customers must shop to realize savings"

Both are red herrings. The real issue is: Do we have a market that works?

Not all markets are created equal, and some can wreak havoc -- such as the Wall Street financial derivatives market that nearly destroyed the global economy. Although deregulation proponents focus on the retail market competition, the real problem is the wholesale market, which is inadequately regulated by the federal government.

The wholesale market covering Pennsylvania is deeply flawed. The most expensive, inefficient power generator sets the price of electricity, and an unelected technocratic body dominated by large utilities charges a huge premium for service reliability -- a premium rose from an average of under $10 per megawatt in 2006 to an eye-popping average of more than $150 per megawatt in 2009.

The mechanisms are supposed to send the right price signals to encourage new generation. In other words, ratepayers are paying a top premium merely to entice power companies -- with no guarantees -- to build more generation and lower the price.

This a corporate giveaway. At the peak of the economic bubble, PPL's stock value shot up more than 700 percent since 1997. PECO's stock value skyrocketed by more than 1100 percent.

How many new plants did we get in return? Not many. It's no wonder that other states, including New York, are screaming for a refund of reliability premiums; Pennsylvania should demand its refund.

The current scheme is rigged against ratepayers. You could shop 'til you drop and still pay top dollar for electricity while your neighbors in regulated states pay much less. Saving 10 to 20 percent by shopping for a retail supplier doesn't matter if the wholesale market already inflated the base price by more than 100 percent.

It's time for deregulation's cheerleaders to acknowledge the flaws in the electricity market and cooperate for real solutions instead of pretending everything is fine or blaming customers for being too lazy or too ignorant to shop.

They can't deliver on their original promise of lower prices, but they can stop perpetuating the lies.

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