The failure of electricity deregulation

Yet more fuel has been added to the argument that deregulation of electricity markets is, at the very least, not working the way we were promised.

Studies conducted in recent months by both proponents and opponents of deregulation have drawn a similar conclusion: that retail electricity prices in states – like New Hampshire — that adopted deregulation have increased dramatically more than in states that chose to retain their regulatory structures.

According to a Nov. 6 article in The New York Times, an analysis of U.S. Energy Department data shows the difference in prices paid by industrial companies in states with deregulation have nearly tripled between 1999 and July 2007, when compared to companies in regulated states. The bottom line: In 2006, industrial customers in deregulated states paid a total of $7.2 billion more for electricity than those in regulated states.

According to the analysis by Marilyn Showalter of Power in the Public Interest – a group that favors regulated electricity markets – prices for industrial customers in the 13 states and the District of Columbia, which all embraced deregulation, have risen from 18 percent above the national average in 1999 to 37 percent above the average today. In regulated states, prices fell from 7 percent below the national average in 1999 to 12 percent below today.

An analysis of the same data by the Electric Power Supply Association, which favors deregulation, found that the prices rose “only” 15 percent higher in deregulated states than regulated states. But the trade group included as deregulated states five other states that had deregulated markets but over the period wound up imposing rate cuts, freezes or caps to blunt the impact of rising prices.

The analyses are only the latest example of the apparent failure of deregulation in electric markets. In the spring, the Tellus Institute in Boston released a study whose title says it all: “A Failed Experiment: Why Electricity Deregulation Did Not Work and Could Not Work.”

But perhaps the best evidence of the failure of deregulation is that the large companies that pushed to deregulate electricity markets in the 1990s have made an about-face as they watch their electricity bills rise, not fall.

The bitter irony is that, save Vermont, all of the New England states embraced deregulation. That means of the 13 truly deregulated states, five are in our region. And New England, as we know all too well, is particularly vulnerable when it comes to energy supply. Deregulation has done little, if anything, to address the region’s energy needs so far – and, as is becoming all too apparent – promises to be just as ineffective in the future.