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Rate Cap Expiration Proves Shocking
October 2006
Retail deregulation of electricity was, according to many, supposed to lower prices and provide more options to customers. At least half that prediction has come true. Industrial and commercial that now purchase electricity in deregulated states have more choices of suppliers and more pricing options than ever before. The question still being debated, however, is whether deregulation has led to lower prices. Many in the generation end of the business say yes, prices are lower than they would have been and there is evidence to support this position, of course. The problem for end users, however, is that even if lower prices for generation are true, this has not necessarily translated into lower prices for the retail buyer.
Large industrial customers have been suffering through higher energy prices, which have translated into higher electricity prices, for the past several years but the issue of high electricity prices has generated little in the way of political “angst” until now. What has changed? One only needs to look at Maryland and Illinois to understand. Until recently, deregulation in these states was moving along gradually, on a schedule set years ago by legislation. Customers forced to purchase at market prices were limited, for the most part, to industrial and commercial ratepayers, with residential consumers continuing to benefit from regulated rates at prices well below current market. Those customers are soon facing market prices and politicians are suddenly concerned about the price shock these residential customers (voters!) will face. Customers of Baltimore Gas & Electric, for example, are facing increases of approximately 70% in the prices they will pay for residential service. Commonwealth Edison customers in Chicago face increases projected to be at least 40% come January 2007. The politicians are mad as hell and they’re trying to do something about it, regardless of the fact that these same customers have been shielded from market prices for years and that their industrial and commercial constituents have been subjected to high prices and high volatility throughout the period.
Last fall, the governor of Illinois tried to influence the outcome of an Illinois Commerce Commission proceeding setting up an auction to determine prices in 2007 by essentially firing the Commission’s chair. While his appointment of a residential advocate as new chairman was rejected by the legislature, the governor’s administration has continued to challenge the Commission in court, a challenge that continues still. Maryland’s legislature went even further–they passed a bill firing the whole Public Service Commission! That bill has, of course, been challenged in court and attempts to resolve the situation continue.
Other states continue to grapple with the issue of high market prices for electricity as rate caps begin to expire. Ohio customers were supposed to have been seeing market priced power beginning in 2005 and 2006, but in order to protect customers the Public Utilities Commission negotiated extensions at increasing prices with the state’s major utilities. Pennsylvania has, for the most part, done the same thing. The problem hasn’t been solved, but the day of reckoning has been pushed back to 2008 in Ohio and 2010 in Pennsylvania. Politicians and regulators are, of course, hopeful that fuel prices and other issues will have eased and been solved by then so that they can happily go to their voting constituents and claim credit for protecting them from higher prices. Meanwhile, industrial and commercial customers continue to pay higher prices, seemingly unnoticed by their representatives and often uncared for by regulators.
Compass Energy Consulting works with medium and large industrial and commercial customers nationwide and can assist with purchasing electricity and other energy needs in this ever changing, highly volatile market environment.
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