Electrical Deregulation is good only if prices go down

Electrical Deregulation is good only if prices go down

As reported recently in the Washington Times, the District, Maryland, New Jersey, Pennsylvania and Delaware have filed a complaint with the Federal Energy Regulatory Commission (FERC) against PJM Interconnect arguing that electricity auctions resulted in unreasonably inflated prices. The complaint relates to auctions held in 2007 and 2008 to set the price of electricity from June 2008 through May 2011. Regulators say the auctions were not competitive, enabling existing power generators to get unfairly high prices instead of creating new generation as intended. Rules for the grid’s pricing models were drafted to give financial incentives for creating new generation, but that never happened. By filing the complaint, the regulators are hoping that FERC will order relief to consumers in the affected states.

Maryland is still smarting from their experiment in deregulation. When the market was deregulated, electric rates were capped at 1999 levels. When those caps expired in 2006, the customers of Baltimore Gas and Electric Company were hit with a 72% increase in their electric rates sparking outrage from the ratepayers as well as the state government. Ignoring the fact that ratepayers had been paying artificially low rates for 6 years, Maryland has been fighting the increase ever since. This is the 4th time this year that the Maryland Public Service Commission (PSC) has taken action in the wholesale energy market. It is interesting to note that the Chairman of Maryland’s PSC said that there is no evidence PJM broke any regulations.

I am not an advocate for higher electric rates, but one shouldn't pay artificially low rates either. There should be a reasonable rate set. This situation is a warning sign for the future. There is a danger that regulators be pressured politically to keep rates artificially low to the point where utilities eventually will start operating at a loss. This will force them to cut back on maintenance and investment in the grid, which will impact the NEMA members. Ultimately the ratepayer will pay the price from less reliable electric service with more blackouts, brownouts, etc.

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