OPINION By Jerrold
Oppenheim, 1/26/2003 Deregulation sent
wholesale electricity prices in California up by 1,000 percent, with rolling
blackouts. Right here in the Commonwealth, deregulated wholesale prices of
natural gas almost quintupled two winters ago and, so far this winter, have doubled.
Deregulated wholesale New England electricity prices hit $6 per kilowatt hour
in 2000. This compares to average wholesale prices of about 3 or 4 cents. Meanwhile,
competitive suppliers have shown approximately zero interest in residential
electricity or gas customers here or anywhere else in the country, according
to a US Department of Energy survey. ''[T]here are no offers of any kind
being marketed in Virginia,'' that commonwealth's regulator observed this
month. ''With rare exceptions, retail competition is not providing meaningful
benefits anywhere in the nation.'' In the United Kingdom, where the idea for
utility competition began, residential electricity competition was created by
fiat. Residential retail prices went up. A big reason for
the failure of utility competition is that price volatility is as bad for
competitors as for consumers. Right after deregulation and those $6 kilowatt
hours, a burst of competitive exuberance led to construction of a 33 percent
expansion in New England's electricity generation fleet - far more than
needed. The immediate impact of this flurry of activity was to provide a
surplus of electricity at relatively reasonable prices. But this is temporary
- the low prices have also resulted in a halt in new plant construction,
which will not resume until demand growth creates summer electricity
shortages that, in turn, drive prices back up to the $6 rate that provides
the incentive for construction of new capacity. A recent analysis predicts
this will occur in about three years. It is this boom-and-bust cycle that -
much like the stock or real estate markets - makes prices volatile. The effect is
magnified by a similar cycle in the natural gas market, since natural gas is
becoming a leading fuel used for the production of electricity. Indeed, all
the new generation built in New England has been gas-fired. Also contributing
to price inflation when supplies are tight is the fact that, in New England,
ownership is consolidating into fewer hands. Such market power is even worse
in the sections of New England, including metropolitan Boston, that are
physically cut off from large parts of the grid. The electricity
boom-and-bust cycle is a national phenomenon. Its fallout is displayed in the
headlines of the Business pages chronicling the distress of competitive
electricity suppliers: Williams borrows money at 30 percent; shares of AES,
Calpine, Dynegy, and Mirant sink by more than 90 percent; nearly all bond
ratings drop to ''junk'' status while yields hit 30 percent. The high capital
costs from this financial debacle, along with electricity shortages from
decisions to stop building capacity, increase both prices and price
volatility. The construction strike also makes less reliable the long-term
supply of an essential service. The solution, for
both gas and electricity, is for the new administration to apply good
business practices for the benefit of all residential consumers. This means
supervising a mix of electricity and gas supplies, including some long term
and at set prices, to enhance price stability; locking in good prices when
they are relatively low; and facilitating the financing of reasonably priced
plants made possible by long-term customers. It also means expanding
efficiency programs that prevent shortages by controlling demand and
continuing to provide assistance for low-income families to pay their bills. Electricity and
gas deregulation brought lower prices only to very large Massachusetts
businesses. Now it is time to provide such benefits to Massachusetts consumers.
Jerrold Oppenheim is a Gloucester lawyer and co-author, with Theo MacGregor and Greg Palast, of ''Democracy And Regulation'' (2003, Pluto Press). This story ran on page D8 of the Boston Globe on 1/26/2003. © Copyright 2003 Globe Newspaper Company. |