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Duke Energy Employee Advocate

Deregulation - September, 2001

"Those who expect to reap the blessings of freedom must,
like men, undergo the fatigues of supporting it." - Thomas Paine

Electricity Put on Hold

High Point Enterprise - Paul B. Johnson - September 29, 2001

The record length of this year's legislative session has further short-circuited consideration of any proposals to reform the way electricity is sold in North Carolina.

Members of the Study Commission on the Future of Electric Service in North Carolina put their meetings on hold at the start of the year pending the conclusion of the 2001 legislative session. The main reason is 18 of the 30 commission members are legislators whose time is occupied during the General Assembly session on other matters.

When they last met in December, study commission members had expressed hope they would be able to resume meeting in the late summer or early fall. The group had been discussing the possibility of deregulating the state's electric industry and opening it up to fair market competition.

But because of the recently concluded, but lengthy, negotiations over the state budget, and the ongoing debate in the General Assembly over state legislative and congressional redistricting, it remains unclear when the study commission might resume deliberations.

The issue of electric industry reform was discussed in Guilford County Friday at the fall conference of the N.C. Economic Developers Association, a group made up of economic developers from across the state. The conference was held at the Grandover Resort & Conference Center.

Joseph Harwood, a vice president with Charlotte-based Duke Energy Corp., said the study commission probably will focus on wholesale electric power issues when it resumes meeting.

The commission may not have much time to deal with the issue of retail competition before the 2002 legislative session begins in May, Harwood told the association members.

Two members of the commission said Friday they don't expect significant progress.

"I haven't heard a word from anybody in the state House this year about the need to deregulate," said Rep. Mary Jarrell, D-Guilford, one of two representatives from the Triad on the study commission.

Sen. Kay Hagan, D-Guilford, said she doesn't expect the commission to meet until January at the earliest. "I can't see us doing anything, to tell you the truth," Hagan said. "There are so many people worried about everything that's happened in California."

For the past year and a half, California officials have grappled with the fallout from their experiment with electric industry reform.

California's electric industry, one of the first in the country to deregulate, started to implode in the summer of last year. The resulting energy crisis has led to exorbitant increases in customer rates, insolvent utilities and periodic, rolling blackouts across parts of California

Hagan and Jarrell said the study commission, which has been meeting for more than three years, doesn't want to act until it can ensure North Carolina will avoid the pitfalls that have caused the crisis in California. High Point leaders have kept track of the electric industry reform debate in North Carolina because of another thorny issue - municipal power debt.

The study commission has declined to propose any solution to the $5.4 billion municipal power debt issue. The 51 towns and cities that run their own electric systems have incurred the debt because of construction costs for two nuclear power plants built in the 1970s.

The costs skyrocketed after the 1979 accident at the Three Mile Island nuclear plant led to stricter construction and operation standards for nuclear facilities. The 51 towns and cities had invested in the construction of the Harris and Catawba nuclear plants.

The thorny debt problem carries significance for High Point, since it has a debt load of approximately $419 million, the fourth-largest individual debt among the 51 municipal power agencies.

Illegal Electricity

Sacramento Bee - Daniel Weintraub - September 25, 2001

Buying your own has been banned in California. Electricity on the open market is now officially contraband. Like prescription drugs, which you can get only from a licensed pharmacy, electricity is something you can buy from your local utility, which can make its own or buy it from the state. Beyond that, it's an illegal substance.

It was the grand hope of a deregulated electricity industry that you and I and the factory down the street would be able to buy our own juice from the lowest bidder. It might have been a pain -- kind of like shopping for telephone service. But just as breaking up Ma Bell spawned great leaps in mobile phone technology, busting the utility monopoly was supposed to usher in a new era for electricity.

Not that there were mobs of shopkeepers and apartment dwellers lobbying the Legislature for consumer choice. It was the biggest users who really wanted to cut their own deals. Under the old, regulated system, the huge factories that make steel and cement and computers, and gobble up electricity by the megawatt, were paying 50 percent more than their competitors in other states. They wanted the right to shop around.

The Legislature agreed, but only to a point. Lawmakers permitted choice, but they rigged the new system in its early years to favor the utilities that were a powerful force in the Capitol. They made it nearly impossible for the private generators to undercut the utilities' pricing, and they put roadblocks in the way of cities that might have gathered their small customers together and used their market clout to negotiate for lower rates.

The government spent millions on an advertising campaign trying to persuade us of the wisdom of buying our own energy. But there weren't really many deals to be had. Now there are none.

Consumer choice died a quiet death last week at the hands of the Public Utility Commission. Its demise was collateral damage from the mess that was California's experiment in electricity deregulation.

Choice couldn't survive because the state, which now controls the energy business, can't cope with the competition. If Californians were allowed to buy their own electricity, pretty soon most of us would figure out that we are getting a rotten deal from the state. As more people left the state system, the few that remained would have to pay higher and higher rates to keep the books balanced. Eventually, the whole thing would collapse of its own weight.

We're in this fix because Gov. Gray Davis, when he stepped in to buy electricity on behalf of the failing utilities in January, went too far. Craving stability at any price, Davis bought almost all the energy the state will need for the next few years and much of what we'll need for a decade. And he bought that electricity at the top of the market, paying prices that had never been so high, and might never be again.

As those prices were passed along to consumers, suddenly choosing your own electricity supplier got more attractive than ever. Thousands of businesses jumped at the opportunity. Among them were the big steel factories in the Inland Empire region east of Los Angeles.

Tamco Steel of Rancho Cucamonga, which makes rebar, realized its annual electricity bill was going to climb from $12 million to $26 million if it stayed with the local utility, Southern California Edison, according to a report in the Riverside Press-Enterprise. The company, which just laid off 70 people, one-fourth of its workers, desperately started searching for cheaper energy. It signed a deal with a private supplier on Sept. 1, just days before the state slammed the door shut on such opportunities.

That's a scenario that was repeated up and down the state all summer, and it illustrates why, in the twisted world of electricity regulation, the Public Utilities Commission had to step in and just say no. Without the ban there would have been a "jailbreak," in the words of one commissioner, leaving small customers or the taxpayers holding the bag.

That decision might have been unavoidable, given the circumstances. But it didn't have to be this way. Davis could have swallowed hard and ridden out the storm earlier this year. He could have signed electricity contracts for shorter terms at higher prices. That would have been painful, financially and politically, but once the crisis passed, Californians would have been free again to set their own course. Instead, we are imprisoned in a high-priced, state-run system, and will be for years to come.

California, in fact, is worse off than it was in 1995, when companies stuck with high utility rates first asked for the freedom to buy their own electricity. This does not seem like an unreasonable request, an act that should be against the law. Yet now it is. The real crime, though, is the state bungling that destroyed the electricity industry.

Fateful Words

Employee Advocate - - September 19, 2001

On the unforgettable day of September 11, 2001, The Wall Street Journal ran the story: “Senate Panels to Move Quickly This Week On Bills,” By John J. Fialka. Here is a quote from the article:

" ‘We don't have a World War III going on here,’ asserted Jim Souby, executive director of the Western Governors' Association, noting that at least a dozen governors have lined up against a proposal to give the Federal Energy Regulatory Commission more authority over the nation's electricity grids. He said Western utilities and regulators are increasing electricity capacity in the region and resent outside interference.”

For this statement to be published on the day of the worst terrorist attack that the United States has ever sustained, is a little more than ironic. It is interesting that the comment was made during an argument stemming from electric deregulation.

What if the energy fat cats get everything set up the way they have always wanted it to be and have no one left to price gouge? If certain silos are emptied, there will not be a great demand for electricity.

Historians will record if this day will be known as the start of World War III. That is, of course, provided there is anyone left to do the recording.

Officials Recommend Abandoning Deregulation

Employee Advocate - - September 11, 2001

The officials in Arkansas are wising up to the failure of electric deregulation. Jeffrey Tomich (Arkansas Democrat-Gazette) reports that the Arkansas Public Service Commission staff says electric deregulation should be scrapped, or at least delayed.

A study by a Washington, D. C. group stated: "There remains a substantial probability that most customers, in particular residential and small business customers, over the next decade will not experience price benefits under competition."

Some legislators are calling for the repeal of the state’s deregulation laws. An act was passed in April to delay deregulation.

Five other states have also delayed deregulation. No one has jumped on the deregulation bandwagon since the California energy crisis. People have heard grandiose promises made about the benefits of deregulation. Now people are learning just who reaps those benefits. It is not the ratepayers!

Deregulation Delay Urged in Southeast

Associated Press - September 10, 2001

A lack of competition among electricity providers in Southeast and East Texas has prompted Acting Lt. Governor Bill Ratliff to urge state utility regulators to delay electric deregulation in those areas.

In a letter to Public Utility Commission Chairman Max Yzaguirre this week, Ratliff said customers could pay more if no other electric providers step in. The regions are currently served by Entergy Corp.

Statewide deregulation is scheduled to begin Jan. 1 following a limited pilot program. However, so far, no competing retail providers have signed potential customers in Southeast and East Texas.

``In the face of mounting evidence that shows East Texas is not ready for competition, the PUC appears unwilling to use tools provided to ensure a healthy transition to competition,'' Ratliff wrote in the letter on Tuesday. It was reported in Friday editions of the Beaumont Enterprise.

Ratliff's spokesman, Nick Voinis, said a legislative oversight committee will review the deregulation situation in Southeast and East Texas when it meets Friday in Austin.

``The issue is up for discussion,'' Voinis said. ``He's willing to be convinced otherwise if new evidence (of competition) is presented.''

Ratliff strongly recommended delaying the onset of competition, citing the fact that the areas are served by utilities whose transmission is supervised by the Federal Energy Regulatory Commission because of the involvement of interstate high-voltage lines.

That transmission of electricity does not connect with the rest of the state's electric grid. As a result, it is less possible for retail providers to shop for the most competitively priced electric power.

The PUC is scheduling hearings into the market readiness of Southeast Texas, said commission spokesman Terry Hadley.

Hadley said a final decision on the region's readiness to launch competition won't be made until late October. Some members of the Southeast Texas legislative delegation have urged the commission to move ahead with plans to begin competition for the region.

State Rep. Allan B. Ritter, D-Nederland, wrote to the commission on Aug. 23 that he opposed delaying deregulation in the region.

``Development of a fully competitive market requires patience and should be viewed as a gradual process,'' Ritter said in his letter. ``Doing so, in the end, will produce benefits for customers.''

Deregulation Disappoints Buffalo

The Buffalo News - By David Robinson - September 4, 2001

So this is what we get from deregulation: A rate increase that will push up bills for most Niagara Mohawk residential customers by 8.2 percent.

Isn't the free market just grand?

It wasn't supposed to turn out this way.

The grand plan hatched by state regulators five years ago was supposed to provide a cure for the sky-high electric rates that have sapped some of the life out of the Upstate economy and burdened its residents. Make the state's utilities sell off their power plants and create a wholesale market for electricity that would reward innovation and efficiency and push prices lower. Open up the utility's monopolistic control over its customer base so new electricity suppliers can jump in with innovative offers that save consumers even more.

It was going to be great, but the plan hasn't panned out -- yet.

For starters, the push to deregulate has been hampered by some lousy timing, coming just as the price of the oil and natural gas used to generate much of the state's electricity has soared. Those higher costs are just now hitting home with the higher rates NiMo's customers started paying on Saturday.

To be sure, the higher oil and gas prices would have pushed up rates even under the old regulated system. In fact, electricity prices are up everywhere, in states that deregulated and states that haven't.

But it's also apparent that deregulation isn't working out quite the way state regulators had hoped.

"The idea was that new competitors would come on the scene and be the salvation," says Gerald A. Norlander, the executive director of the Public Utility Law Project, an Albany advocacy group for low income consumers. "That's not happening."

In fact, the rate hike for all but a relative handful of NiMo's 1.4 million residential customers will be 8.2 percent, not the 7.9 percent average increase the state Public Service Commission announced Wednesday. The PSC came up with the lower figure by including about 1,800 NiMo residential customers who will see their delivery rates decline because they buy their electricity from NiMo or another supplier at market prices, commission documents say. Rates for small commercial customers will go up by an average of 6.8 percent. NiMo's biggest industrial customers, whose delivery rates already have fallen 25 percent over the last three years, will get another 4.5 percent cut. But those firms already have been enduring increases in their overall power bills because they've been buying their electricity on the more costly open market.

Either way, the bitter reality is that, three years after Niagara Mohawk and other New York utilities started down the path to competition, NiMo's residential and small business customers are paying more for their electricity than ever before. The ballyhooed 3.25 percent rate cuts that saved NiMo's residential customers a few bucks in deregulation's early days are gone, gobbled up and then some by the latest rate increase.

"Restructuring has harmed, not benefited, the small NiMo consumer," Norlander says.

Not that the increase is really NiMo's fault. The deregulation plan forced the Syracuse-based company to sell most of its power plants and instead, purchase its electricity on the volatile open market. The new rate plan actually cuts Niagara Mohawk's charge for delivering the electricity to homes and businesses by an average of 5.4 percent. But overall bills are going up because Niagara Mohawk estimates that the price of the electricity itself will be about 40 percent higher than what consumers were paying under the rates that were set in 1998 under its Power Choice plan...

California Power-Crisis Bill?

Orange County Register - By KATE BERRY - September 3, 2001

Consumers, hold on to your pocketbooks.

State officials, utility companies and energy consultants are calculating the financial blow from the state's energy crisis - and the results aren't pretty.

One preliminary estimate, by Pacific Gas & Electric, San Francisco's bankrupt utility, puts the price at an average of $6,800 over the next decade for each of the 10 million ratepayers of the state's three big investor-owned utilities. That $68 billion is the state's estimate of its power-buying costs.

But the costs don't end there. The state's purchases account for only one-third of the power supplied by the state's three largest utilities. Add to that a hodge-podge of other anticipated costs, from the bailout of Southern California Edison to conservation programs to upgrades to transmission lines, and the price rises.

Economists believe California's energy crisis will go down in history as one of the most-expensive public policy fiascoes ever, with some estimates putting the tab at more than $100 billion.

"Think of it as though the governor bought into a bunch of dot-coms and simply lost all his money - only it's going to be ratepayers' money," said Robert McCullough, who runs a Portland-based consulting firm that works with the electricity industry.

Though consumers may never know the actual cost of the state's 15-month energy imbroglio, that hasn't stopped consumer groups and the utilities from trying to figure out the costs - and demanding answers. Many blame Gov. Gray Davis and his lock on the state's power-buying arm, the Department of Water Resources, which has not released complete information about state power purchases. The state released copies of $43 billion in long-term contracts only under a court order.

Not every ratepayer will pay an equal share. Residential rates were tiered this year so consumers who use more electricity pay higher rates.

Sam Sarem, a retired petroleum engineer who owns a 2,450-square-foot, four-bedroom home in Yorba Linda, is paying $260 a month more for electricity today than he did a year ago - even though he reduced his power use by 20 percent, and got a rebate for doing so.

Sarem's electricity bill jumped a whopping 313 percent to $344.79 in July.

"This is hitting everyone in the pocket," he said. "If it was our patriotic duty or something we had to do, fine, but this is just from stupidity."

At least 3 million California consumers haven't been touched by the crisis that grew out of power deregulation because they are served by municipal utilities like Anaheim Public Utilities or the Los Angeles Department of Water and Power, which weren't deregulated.

Energy regulators at the state's Public Utilities Commission in San Francisco have been trying for months to add up the disparate costs to determine if more rate hikes are needed for customers of the investor-owned utilities.

The commission raised electricity rates in March by an average of 3 cents a kilowatt-hour, after a 1-cent increase in January. So far, the PUC has said it doesn't expect more increases.

"We started with rates that were 40 percent above the national average in 1996, and we're ending with rates higher than that," said Matthew Freedman, a lawyer for The Utility Reform Network, the consumer group known as TURN. "Consumers will be paying inflated electricity prices for five to 10 years because they're locked into these contracts."

Since the state's general fund has been depleted of $8.6 billion for power purchased this year alone, the state plans to sell $12.5 billion in bonds that will be repaid by ratepayers. Because state lawmakers don't want consumers to experience "rate shock," they are spreading the costs over 10 years.

Beyond that, California businesses, whose rates have risen a whopping 50 percent or more this year, will be responsible for repaying $2.5 billion of a proposed $2.9 billion bailout for Edison, the state's second-largest utility. And Gov. Gray Davis' strategy to avoid rolling blackouts cost $600 million in taxpayer money from the general fund to repay ratepayers for conserving energy.

The scattered costs - many of which aren't yet fully known - have left economists scratching their heads over how to total it all up.

Severin Borenstein, director of UC Berkeley's Energy Institute, agreed, adding that fluctuating natural-gas prices and other variables make it impossible to figure out how much consumers will pay.

"The long-term effects of this crisis will be substantial," said Freedman, at TURN. "And we're not out of the woods yet because there is still a possibility of more rate increases."

Virginians to Pay for Deregulation

Richmond Times-Dispatch - By Greg Edwards - September 1, 2001

If Virginians want competition for their electricity business, they're going to have to pay for it, according to some power companies interested in competing with existing Virginia utilities.

LG&E Energy of Louisville, Ky., has recommended that Virginia do away with the price caps in the state's deregulation law. The company has also suggested that Virginia should consider tax credits and other incentives to get companies to build generating plants in parts of the state with the highest electricity use.

Allegheny Power of Maryland has suggested that the price caps be periodically increased to promote competitive markets in Virginia and reduce the potential for rate shock when the caps are removed in 2007.

The state legislature included rate caps in Virginia's electric deregulation law to protect consumers and utilities from wide swings in the market during a transition to retail competition.

Beginning Jan. 1, some Virginians are going to get a chance to choose a different electric supplier, and all Virginians are supposed to be able to choose an alternative to their existing power supplier by 2004, but only if competitors decide to come into their communities…

Electric competition, however, was sold to Virginians as a way to lower electricity prices, not raise them. The deregulation of electricity has proved tougher than many thought it would be.

Higher prices and volatility in wholesale markets across the country have taken their toll on state retail markets, wrote Dr. Ken Rose in the SCC report. Rose is an economist with the National Regulatory Research Institute in Columbus, Ohio.

Pennsylvania is held up by some as the model of deregulation. But, according to Rose, during the 12 months that ended in July, the number of competitive offers below the residential price charged by the old utility fell from 28 to two. States such as Massachusetts, New Jersey and California have also seen sharp declines in competition. Nationwide, in the 13 states and the District of Columbia where competition is allowed, the number of such offers fell from 48 to nine…

Deregulation - August 2001