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Spring 2002

States Issue State-of-Deregulation Reports

Many of the states that deregulated their electric and/or natural gas industries require an annual report documenting the status of energy competition, effects on consumers, current energy planning efforts and other matters. These reports can be an invaluable source of information on how well deregulation is working and what the state plans to do to encourage competition and/or mitigate its effect.

Listed below are synopses of the most recent state deregulation reports and links to relevant state websites.

Maryland
The Public Service Commission is required to prepare an annual ten-year plan detailing the long-range plans of the state’s electric companies. It includes summaries of major events that have affected or may affect the utilities in the near future.

The PSC’s December 2002 report noted that continued uncertainty in wholesale pricing and uncertainty over business rules are causing many suppliers to choose not to enter the marketplace. Not all of the 38 licensed suppliers serve customers in every segment of the industry: 48 percent offer service to residential customers, 94 percent offer service to commercial customers, 81 percent offer service to industrial customers, 18 percent offer service to government, and 8 percent offer service to institutions.

The report also addressed:

• Information on transmission and distribution services in Maryland.
• The status of competitive electric markets at the wholesale level.
• Several major events within the energy industry that occurred during the last year in this region as well as around the nation, including the merger of PEPCO and Conectiv, a combination of two electric companies that serve several states, and the collapse of major energy companies in the U.S.
• A summary of utility efforts since January 1, 2002, to implement conservation programs and to promote and utilize renewable resources and cogeneration.

Michigan
According to Michigan’s annual report on restructuring, electric restructuring was created in response to the state’s relatively high electric rates that, in large part, stifled economic development. The state’s 2000 restructuring law included explicit goals, which include fostering competition, improving the opportunities for economic development, and promoting financially healthy and competitive utilities in Michigan.

According to the state’s February 2003 report on restructuring competition in Michigan’s electric markets continued to expand in 2002. Other findings were that:

• Over 5,700 customers are now participating in Michigan’s Retail Open Access Program, almost doubling since 2001.
• The Commission has licensed 25 alternative electric suppliers.
• In 2002, 2,286 megawatts (MW) of new in-state electric generation capacity became operational in Michigan.
• All investor-owned electric utilities in Michigan joined multi-state Regional Transmission Organizations (RTO’s).
• Transmission capacity was increased by 2,000 MW in 2002.

Ohio
As Ohio begins its third year of retail electric competition, the Ohio Consumers' Counsel (OCC) 2002 end-of-year report expressed concern about the health of the state's electric marketplace and the potential long-term risks for Ohio's residential electric consumers. Specific concerns include the following:

• Competition is stalled in virtually all parts of the state. As of December 31, there were just two electric suppliers actively soliciting residential consumers. Residential customers in Central and Southern Ohio, and in the Miami Valley, have had virtually no choices for alternative suppliers.
• Few suppliers are marketing to individual consumers. Approximately 98 percent of Ohio's residential customers who have switched suppliers have done so through large aggregated buying groups.

The agency notes that the state must address a number of tough issues in 2003:

• What happens if there are few or no competing electric suppliers when the market development periods end?
• What price protections will consumers have when the current rate freeze disappears?
• What state actions will be taken to break the logjam over regional transmission issues that threaten both the reliability and affordability of electricity for Ohio consumers?

Oregon
The Oregon Public Utilities Commission (PUC) released a December 2002 report evaluating whether residential consumers would benefit today from a choice of competing power suppliers. The PUC concludes that residential consumers in Oregon would not benefit at this time because:

• There likely would be few, if any, power suppliers competing for residential consumers. The PUC noted that only a few states that have opened their retail electric markets to competition have several suppliers serving residential consumers. Some suppliers that had been serving the residential market abandoned it or went out of business. Customer acquisition and administrative costs to serve residential consumers are high.
• Today, the cost of implementing a competitive power market for residential consumers exceeds the likely benefits. Informing residential consumers about their options in a competitive retail power market, changing utility information management, accounting and billing systems, responding to customer inquiries, resolving complaints, switching and billing problems, and overseeing suppliers and marketers would be costly. Some states have spent tens of millions of dollars on consumer education alone. For the small percentage of residents who chose a supplier other than their utility, the savings were small or they chose to spend more to get power from renewable resources — already an option in Oregon.
• Competitive power markets for residential consumers have not been in place long enough in other states to learn from their experiences. California has suspended restructuring, but nearly half the states are experimenting with some form of retail competition for electricity service. Of those, 17 states and the District of Columbia allow residents to get electricity from a supplier other than their regulated utility. Residential electric rates have declined in those states. But that largely is the result of mandating rate reductions for regulated utilities and requiring competing offers to be lower during the transition to competitive markets, and it is unclear what will happen when these provisions expire.
• Residential consumers are not well suited to assess or manage the risks of a competitive retail power market that is just beginning to develop. Further, consumer protection concerns remain. Residential consumers are unwilling to spend a lot of time reviewing their energy options, and the information may be complicated.
• Because electricity is a necessity, the stakes are high for consumers who unwittingly find themselves subject to price swings tied to the volatile wholesale power market. Most residential consumers are unable to reduce their energy use significantly in response to signing up for a misrepresented electricity product or if they have trouble resolving a billing problem involving more than one company, for example.
• New utility rate options give residential consumers meaningful choices without the risks of a competitive power market. Among the potential benefits of competition for consumers are lower prices and more products and services to choose from. New power options offered by PGE and PacifiCorp already give residential consumers an opportunity to reduce energy bills and provide more choices in the safety of a regulated environment. Consumers who can shift some electricity use from higher-cost to lower-cost times or use less electricity during high-priced months can save money. The renewable resource options let consumers choose power plants with fewer environmental impacts.

Texas
Retail electricity customers in Texas have saved more than $1.5 billion since deregulation began in January of last year, according to the Public Utility Commission’s 2003 Scope of Competition Report.  The PUC said the savings are based on a comparison with regulated rates that were in effect during 2001.

However, the commission is recommending that the legislature consider some changes to Texas' year-old deregulated system to prevent abuses. State lawmakers need to "expand or clarify" the commission's authority, particularly relating to oversight of the electricity industry, the PUC said. Specifically, the agency wants the cap on administrative penalties it can use to be raised.

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