Tuesday, February 6, 2007

Who are we fighting?


I recently read in the New Haven Independent about a group of United Illuminating customers who have formed an organization called “Fight The Hike”. In an attempt to overcome ten years of political inertia, these brave activists have embarked on a mission to force the CT legislature to take action regarding electricity regulation. Bravo to this group for stirring the energy policy pot. According to their website, they have 3 demands:
  • The rate hikes must be RESCINDED immediately,
  • The state legislature must pass RE-REGULATION LEGISLATION, and
  • The DPUC members, who have approved the hikes, must RESIGN for failure to uphold the public interest.
While I do wholeheartedly support the idea of this group (and everyone, for that matter) forcing the CT legislature into action, I am concerned that these particular demands are not the right approach. Here’s why:
The reason that de-regulation has thus far failed to display any benefits from free-market competition is because our legislature set the standard offer too low. Instead of addressing the lack of emerging competition, they continually postponed changes for 10 years. At the end of 2006 we were still being offered 1996 rates minus 10%. Who can compete with that? The price of oil has doubled and natural gas has gone through the roof. Why should we not expect that our rates will go up? It is worth noting that before UI could even say "rate hike", Levco Energy had announced that it would begin signing up customers in that region. Now UI customers have one alternative. If we pull back the hikes, that one alternative will disappear as quickly as it appeared.
This hike is comprised of "pass-through" charges based on real generation rates that UI has negotiated with electricity generators (UI no longer operates any generation facilities). The DPUC is actually required to approve increases based on higher generation charges:

"The DPUC must adjust such rates to reflect changes in state and federal taxes and the utilities' costs of obtaining energy."

UI will not see any of the money from this increase -- they pass generation charges directly to the cutomer. If the DPUC had not approve these charges, someone would eventually have to pick up the difference. It has been suggested that taxpayers should foot the extra charge, but this would discourage conservation by spreading one person's wasteful lifestyle to his luddite neighbor's tax bill. People should pay for what they use and they should use much, much less of it. I think the DPUC made the right decision. The locally-fixable part of this problem is not corporate greed, it’s lack of competition.
Re-regulating, is somewhat of a toss-up in my opinion. First of all, I guess it would mean that the state or the utilities would re-purchase all of the power plants that they sold off. Whether or not they have that money is a question that I can’t really answer. Maybe they can rent them back or something. In any case, I’m not sure it’s time to give up yet on deregulation here. It has not been particularly successful in all (or any) of the goals it was meant to accomplish, but I think that is because it was set up to be doomed from the beginning. In theory it should work (as it did for long-distance telephone rates), but something has to be done now to encourage more competition. On the other hand, is it wise to have a commodity as critical to our culture as electricity at the mercy of a totally free market?

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