APPA claims deregulation hasn’t been so great for customers

The American Public Power Association (APPA) has released a report that says electricity deregulation has yet to result in lower prices for customers compared to states that did not restructure.

After nearly two decades of retail and wholesale electric market restructuring, the promise of reduced electricity rates has failed to materialize, APPA said in a May 18 news release announcing the report. “In fact, customers in states with retail choice programs located within electric markets operated by Regional Transmission Organizations (RTOs) are now paying more for their electricity than they did in 1997,” the report asserts.

In 2014, customers in deregulated states paid 12.7 cents per kWh — 3.3 cents per kWh above the 9.4 cents per kWh paid by customers in regulated states, APPA said in the report.

“Policymakers who implemented electric utility restructuring starting in the 1990s hoped to reduce electricity rates through increased wholesale and retail competition. As APPA’s latest report shows, the reality after nearly 20 years is much different. This should be a wake-up call for us all. Simply saying that we have markets and that they are competitive does not make it so,” said APPA President and CEO Sue Kelly.

Elise Caplan, manager, electric market analysis at APPA, explained that RTO-operated mandatory capacity markets in the New York, New England and PJM RTOs, make the situation worse. In 1997, retail rates in deregulated states within these RTOs with capacity markets were 3.5 cents per kWh higher than rates in regulated states. In 2014, that gap grew to 4.1 cents — an increase of 0.6 cents per kWh.

Such an increase in costs is hard to justify, especially when these markets do not provide greater resource adequacy or reliability than the markets in states with lower rates, APPA said.

The report shows rate differentials for regulated versus deregulated states by RTO markets region — ISO New England, PJM Interconnection, New York ISO (NYISO), the Midcontinent ISO (MISO), and the Western states.

Given the data long-standing concerns with the failure of capacity markets to perform, Kelly said APPA welcomes the recent introduction of Senate and House energy bills with capacity market provisions.

Senate Energy and Natural Resources Chairman Lisa Murkowski (R-Alaska) introduced S. 1222, the Continuity of Electric Capacity Resources Act calling for tariff and other amendments if certain enumerated objectives are not being addressed by the capacity markets.

Many such bills were discussed at a May 19 hearing before the Senate Committee on Energy and Natural Resources.

Senate Energy and Natural Resources Chairman Lisa Murkowski (R-Alaska) introduced S. 1222, the Continuity of Electric Capacity Resources Act calling for tariff and other amendments if certain enumerated objectives are not being addressed by the capacity markets.

 S. 1272 was introduced by Senator Edward Markey (D-Mass.) and would require the Government Accountability Office (GAO) to conduct a study on the effects of forward capacity auctions and other capacity mechanisms on consumer prices, generation, and competition in energy markets.

Competitive power producers don’t share APPA view

In testimony before a Massachusetts legislative panel recently, New England Power Generators Association (NEPGA) President Dan Dolan said New England is seeing a massive wave of new potential investment in power generation.

“What is remarkable is that New England’s average wholesale electricity price in 2014 was actually lower than the inflation-adjusted price in 2003, when the ISO New England markets as we know them first started,’ Dolan said in his written testimony.

“To paraphrase President Reagan, there they go again,” said Electric Power Supply Association (EPSA) President and CEO John Shelk. “It seems each year or so our friends at APPA dust off the same flawed approach to evaluating retail and wholesale competition in states that restructured.”

 “A truly complete analysis would have to delve far more deeply into the components of the retail rate in each state to draw conclusions as to causation,” Shelk went on to say.

APPA’s report doesn’t seem to account for factors like transmission and distribution charges along with state taxes and fees, “none of which competition can address,” Shelk said.

APPA’s omission of Texas, the nation’s largest, deepest and most vibrant retail competitive market is glaring, Shelk said. “Finally, the APPA report utterly fails to point out the double digit rate increases implemented or imminent in cost of service monopoly utility states such as Indiana, Georgia and Mississippi where cost overruns at major generation projects will be thrust on the backs of captive customers in those states,” Shelk added.

Report looks at 2014 electric rates

The eight-page report is titled “2014 Retail Electric Rates in Deregulated and Regulated States.” It was prepared by APPA Manager of Policy Research and Analysis Paul Zummo.

In most deregulated states, investor-owned utilities (IOUs) sold their electric generating facilities as retail choice was implemented, the report says.

Deregulated states are California, Connecticut, the District of Columbia, Delaware, Illinois, Massachusetts, Maryland, Maine, Michigan, Montana, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, and Rhode Island, APPA said.

Over the past few years, the percentage of customers purchasing from an alternative supplier has increased, APPA said. In over half of retail choice states, most of the total load is served by an alternative supplier, although residential load in all but a handful of states is served predominantly by the incumbent utility.

The distribution utility — acting as default or provider-of-last-resort — purchases power from the wholesale market to serve customers not purchasing from an alternative supplier.

All retail choice states except parts of Montana are located in regions where wholesale electricity prices are set through centralized wholesale markets run by RTOs and independent system operators (ISOs), APPA said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.