Electric Industry Deregulation: A Look at the Experience of Four States

19

JANUARY, 2016

“Public Sector Consultants Inc. (PSC) was hired to review the experiences of other states that deregulated their markets and identify lessons or issues that might be relevant to the current discussion of Michigan’s energy policy. PSC conducted case studies of Texas, Illinois, Montana, and New Jersey—four states that represent a range of geographies, political leadership, and deregulatory approaches and policy frameworks In our analysis, PSC found that while there were some limited benefits of electric market competition in these states, broad success for deregulation has either not materialized, or has come with other regulatory and financial costs. Specifically, the case studies of these four states found that: 

  • Rates have sometimes been more volatile under deregulation 
  • Electricity rates for industrial customers in one of the states declined in the early years of deregulation, but climbed again after initial power delivery contracts expired and wholesale prices increased 
  • There are significant challenges with pricing default electric service—the service provided to residential customers who do not opt for, or cannot obtain, competitive electric service 
  • A more flexible rate stabilization mechanism (such as Texas’ “price to beat”) during the transition period worked better than traditional price caps in attracting alternative providers 
  • Electric capacity and reliability can be a substantial challenge 
  • Deregulation can reduce a state’s control of its energy policy because of the stronger role regional transmission organizations and the federal government play 
  • New forms of market/government intervention to address market failures often have been necessary”

See the report here:  http://www.pscinc.com/LinkClick.aspx?fileticket=nPSvMSq3Zko%3D&tabid=65

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