Fine Print: Regulated and Deregulated Power Markets

Assessing the arguments in "Retail Electric Rates in Deregulated and Regulated States: 2010 Update" by the American Public Power Association

What it claims: Using U.S. Department of Energy, Energy Information Administration data, the study shows that between 1997 and 2010 increases in retail (read consumer) prices were significantly higher in states with deregulated markets than in regulated states.

How much higher: In 2010, rates in deregulated states were 4.4 cents per kilowatt hour higher than rates in regulated states (13.1 versus 8.7), a wider gap than existed in 1997 when the difference was 3.1 cents per kilowatt hour. New Jersey deregulated its energy markets in 1999.

What happened in New Jersey: In the state, the average for customer rates was 10.5 cents per kilowatt hour, which rose to 14.7 cents per kilowatt hour in 2010, a difference of 4.2 cents.

Why prices rose: According to the association, which has pushed for changes in the deregulated marketplace, instead of new suppliers entering the market to bolster competition, which would lower prices, retail competition failed to develop as anticipated. Utilities, most of which had shed their power plants, ended up buying power from the older, less efficient fleet that had stepped in to provide reliability, albeit at a higher price.

What can be done: The association recommends phasing out the capacity markets (which have driven up prices to consumers in New Jersey) and entering into long-term power supply contracts (which New Jersey sought to do in entering into contracts with three power plant developers.) Both of those initiatives have won little support from federal authorities and the independent operator of the regional power grid.

What power suppliers say: Consumers pay less for electricity in some competitive markets than they did under monopoly, according to COMPETE, a coalition of 540 electricity suppliers and others involved in the sector. In Texas, for instance, retail customers in some competitive markets paid up to one-third less in 2010 than in 2001. They also argue development of renewable energy grew 20 times faster in restructured markets than in regulated markets.

What power suppliers don’t say: A new study by the power association concludes that companies owning merchant generation continue to earn revenues for wholesale electricity markets that greatly exceed the cost of producing electricity.

What power suppliers dispute: They contend that the arguments by the association and its basic premise that consumers lose when companies succeed are invalid. They argue competition is not a zero-sum game: higher profits do not necessarily amount to higher prices. The companies that succeed in competitive electricity markets have done so primarily because they have lowered costs by improving performance at plants that ran under the old monopoly system, according to the Electric Power Supply Association.

What is likely to happen in New Jersey: That is a big unknown. With the state’s efforts to develop three new power plants apparently stymied by actions taken by the Federal Energy Regulatory Commission (FERC) and PJM Interconnection, the regional operator of the power grid, state officials have vowed to press forward with efforts to develop new generating capacity here to reduce congestion costs that add more than $1 billion a year to energy prices here. Stay tuned.