Competition Is Finally Working -- Kill It!

May 28, 2009

Residential electricity customers in Connecticut pay 77.2 percent more, per kilowatt hour, than the national average -- the highest price in the continental United States.

And evidently, most Nutmeg State lawmakers like it that way.

Earlier this session, two bills touted as ratepayer relief passed by wide margins in the House of Representatives. They now face possible approval by the Senate. If electricity purchasers -- homeowners as well as businesses -- are lucky, the June 3 deadline for the legislature’s 2009 regular session will pass with the bills still in senators’ to-do pile.

H.B. No. 6510 creates the “Connecticut Electric Authority,” a quasi-public agency. H.B. No. 6636 is essentially the return of monopoly utilities.

Both bills are assaults on an experiment Connecticut launched in 1998. The law is often called “deregulation” by liberal activists and lazy reporters. But if 1998’s reform was deregulation, then the death penalty is a healthcare plan. “Restructuring” is the term used by more thoughtful observers, who note that while it permitted new companies to sell to Connecticut’s residential, commercial, and industrial consumers, the measure also required the state’s utilities to unload their generation facilities. Furthermore, United Illuminating and Connecticut Light & Power retained their transmission and distribution roles. And a mandate was placed on suppliers that required them to get a portion of their electricity from fashionable, if expensive, “green” sources.

Some deregulation, that.

Economics 101 dictated that the restructuring law wouldn’t help ratepayers’ checkbooks, and it didn’t. In real terms, the price homeowners paid for electricity rose by 25.7 percent between 1998 and 2007.

Perpetually lurking to pounce when even a flimsy case can be made for “market failure,” Connecticut’s leftists have mounted a campaign to extinguish choice for residents and small businesses. Leading the effort is Rep. Vickie Nardello (D-Prospect). “The outcome of creating a stable customer base, allowing planning, and eliminating risk will be a reduction in rates,” she claims.

Nardello’s back-to-the-future agenda goes further, through the establishment of a government entity with the ability to own power stations, hire personnel, and issue bonds. Thoroughly spun by the PR machine of the “public power” lobby, Nardello fails to understand that whatever price advantages government-run utilities offer are offset by the cost of the considerable taxpayer-financed perks they receive. (Her Connecticut Electric Authority is a good example. As an “essential governmental function,” it would “not be required to pay any taxes or assessments” imposed by municipalities or the state.)

Nardello’s anti-competition crusade comes at a particularly inopportune moment, because as deeply flawed as Connecticut’s restructuring architecture is, there are signs that it’s starting to work.

Despite the uninviting environment created by a state brimming with junk-science-spouting, tax-loving pols, recent years have seen both power providers and generators start to venture into Connecticut. According to the Retail Energy Supply Association, over “138,000 … residential, commercial and industrial consumers … have used their power of choice to find value and service from competitive retail electric suppliers.” Homeowners can pick from six sellers, while businesses have 17 choices. Generation stations are expanding or under construction in many of Connecticut’s cities and towns -- not just phony-baloney, heavily subsidized hydrogen, wind, solar, and biomass contraptions, but fossil-fuel plants.

So what’s the reason to return to fully regulated power? If anything, the small progress spawned by restructuring should encourage decisionmakers to fix the defects of the existing law, and complete the transition to a real electricity market.

For inspiration, it’s best to look to the southwest. The Texas Public Policy Foundation’s Bill Peacock calls his state “the greatest success story in the United States -- if not the world -- in moving away from the model of heavily regulated public utilities.” The numbers are stunning. Texans have dozens of suppliers to pick from, and most have chosen a non-incumbent utility. The five former monopolies serving the Lone Star State have lost between 56 and 80 percent of their market shares. And even though Texas depends heavily on plants fed by natural gas, electricity prices have been restrained.

Restructuring isn’t the cause of Connecticut’s pricey power. Longstanding supply/demand imbalances, federally imposed transmission-congestion charges, spikes in the cost of hydrocarbons, and mandates for politically correct fuel sources bear much more blame than the state’s unwise attempt at managed competition.

But regardless of what got us to this point, the challenge before lawmakers today is to find the most promising tools to control the state’s absurdly high cost of electricity. The way forward is more choices, not less. Re-monopolization and government-run power plants are counterproductive cop-outs.

D. Dowd Muska is a writer, commentator and lecturer. His website is www.dowdmuska.com.

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