Power Prices Put Utilities in the Hot Seat
By Eric Kelderman
Spurred by skyrocketing power bills, lawmakers in at least six states are considering reining in electric utilities that were freed from regulation in the late 1990s.
Moves to re-impose state oversight of electricity rates underline how deregulation of the electric industry has failed to live up to its promises of competition, lower prices and a reliable power infrastructure.
Officials in Illinois and Texas are alleging that power companies illegally manipulated prices, and bills are moving through both legislatures to roll back recent rate hikes. The Virginia General Assembly has sent Gov. Tim Kaine (D) a measure to set power company profits and shut out competition in his state’s electricity market. Legislatures in Connecticut, Maryland and Montana also are considering measures to overhaul utility regulations and rein in prices.
“It looks like electricity restructuring is teetering on the edge of failure,” said David Kolata, director of the Citizens Utility Board of Illinois . Electricity bills have risen 26 percent to 55 percent for average Illinois homeowners since the expiration last year of a rate freeze in place since deregulation. In some areas bills have doubled or tripled, Kolata said.
This is not the first rebellion against the power deregulation movement, launched in 1996 when California became the first state to allow utility companies to compete for customers within and across state borders.
Within four years, 23 states and the District of Columbia had followed suit, breaking up the power generation and retail services to make them compete and negotiate with power plants across the region for cheaper prices.
But the California energy crisis of 2000-2001, the financial scandal of energy giant Enron, and the massive Northeastern blackout in August 2003 caused the Golden State and five others to abandon or delay deregulation schemes.
The current rebellion is being fed largely by fast-rising energy costs as price caps, enacted to protect consumers during the early phases of deregulation, have expired in several states.
While the cost of producing power also has risen, especially with natural gas, consumer watchdogs and legislators charge that electric utilities are raking in windfall profits at consumers’ expense, and sometimes illegally.
Illinois Attorney General Lisa Madigan on March 15 called on the Federal Energy Regulatory Commission to investigate whether 15 electricity producers colluded to inflate prices at a September 2006 power auction. Madigan alleges that the electricity prices from that sale were 40 percent higher than wholesale rates and cost Illinois consumers an extra $4.3 billion.
On top of that, legislation is moving through both chambers of the Illinois Legislature to return rates of Ameren Corp. customers to their 2006 levels and freeze them for up to three years.
Kolata said the rate freeze is meant to give policymakers time to design a new regulatory model for electricity. ” No one wants to be back here in three years with the same mess,” he said.
Ameren’s chief executive officer conceded in a March 18 op-ed article that a return to traditional regulation would be better for residential customers. But the company also is begging lawmakers not to roll back recent increases after a bond-rating service downgraded the company’s stocks to junk-bond status.
The Texas Senate unanimously approved three bills to give regulators more power to curb electricity rates and encourage retail power competition just days after charges of electricity price manipulation in the Lone Star State. The Texas Public Utilities Commission reported that the state’s largest power provider, TXU, inflated prices by $70 million during the summer of 2005, giving the company an extra $20 million in profits.
Power costs in parts of Texas have gone up 70 percent to 100 percent over the past five years and have become a major burden for some elderly residents, said Tim Morstad, a lobbyist for the Texas branch of the AARP. The senior citizens’ group, one of the nation’s largest lobbying organizations, has made electricity prices its No. 1 issue during Texas’s biennial legislative session, he said.
AARP and other consumer groups also oppose a Virginia bill that would replace the state’s 1999 deregulation plan, just months before the rate caps are set to expire in that state. Opponents fear the new measure will be a boon for Dominion Virginia Power, the state’s dominant utility, because it links the company’s profits to utility earnings in nearby states.
Virginia’s governor likely will propose amendments to the bill by March 26, said Kaine spokesman Kevin Hall. “Our inclination is always to fix what is broken,” he said. Virginia’s General Assembly has ended its regular session but has a one-day session on April 4 to accept or reject the governor’s proposals.
“That [bill] is terrible. It completely eliminates any incentive for Dominion to pass efficiencies on to customers,” said John Anderson, president of the Electricity Consumers Resource Council, an association of large industrial power users.
Anderson said Virginia legislators were spooked by 2006 rate hikes in Maryland in which consumers were threatened with a 72 percent increase after the state’s price controls expired.
Last year, the Maryland General Assembly tried to soften the blow of those rate hikes by phasing in a 15 percent increase this year and an extra monthly charge of $2.19 that will be in effect for the next decade. Then-Gov. Bob Ehrlich (R) nixed the bill, but the Democratic-controlled Legislature overrode his veto.
This year, newly elected Maryland Gov. Martin O’Malley (D) has replaced the chairman of the state’s Public Service Commission, which regulates the electric industry. A bill has been introduced in the General Assembly to allow counties to purchase power wholesale for their residents, a move the bill’s author has said will shave 10 percent off power bills.