By --Source, The Arizona Daily Star
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Many states -- including Arizona -- are re-evaluating electric competition following California's energy debacle, said Paul L. Joskow, professor of economics and director of the Massachusetts Institute of Technology's Center for Energy and Environmental Policy Research.
He spoke this week to a capacity crowd of about 250 at the 2002 Fathauer Lecture in Political Economy presented by the University of Arizona's Eller College of Business and Public Administration.
"California has been a poster child for problems," Joskow said, citing rolling blackouts, long-term power purchase contracts costing $15 billion to $20 billion more than market price, transmission bottlenecks and skyrocketing power prices the state has seen in recent years. "The state has put an end to its experiment with competition. The experience there has put a pall on other states.
"People are taking lessons from the disaster in California," he said. "This is not a bad time to take a look at what has been done, and learn from what has happened."
Arizona regulators are reviewing the rules that offered the state's business and residential ratepayers -- with a few exceptions -- the opportunity to participate in competition beginning January 2001, said Heather Murphy, public information officer at the Arizona Corporation Commission, the state agency that regulates utilities.
The ACC is polling utilities and interested parties to determine if, and how, the state's electric restructuring policy could be improved, Murphy said.
"California provides a rich place to look for experience -- not all of it good -- on deregulation," said Steve Lynn, Tucson Electric Power Co. spokesman. "The commission is doing the right thing to take another look."
Competition in TEP's service territory has been minimal, and no TEP customers are currently being served by competitive energy service providers, Lynn said.
"Right about the time we were getting ripe for competitive electric providers to come into the state and begin providing service, California began going through their little debacle," Murphy said. "Right now we don't have any companies aggressively marketing in Arizona, particularly on the residential side."
Competition has failed to attract customers, and energy service providers, to the restructured marketplace, Joskow said. In some states that have implemented competition, the number of ratepayers using other than their local utility has been falling as anticipated electric price reductions failed to materialize. And competitive energy sellers are not actively marketing their wares, unable to make money in a competitive market.
"From the perspective of many consumers, the changes have not been a great success," he said. "Maybe it was all a mistake, and it is a natural monopoly."
But electric competition -- if done correctly -- can lead to substantial price savings and lower costs, he said.
In Britain, a system of national electric deregulation, rather than the state-by-state restructuring effort seen here, is needed for success. "We can't have a system where every state is doing its own thing. We need a national policy," he said.
But TEP's Lynn disagreed: "One-size-fits-all may not work well. All states' situations are different, and they are at different levels of progress."
Joskow said competition has offered some benefits, despite California's problems.
Since 1997, investments have grown in new "merchant" generating plants being built to take advantage of sales in a competitive market, Joskow said. Merchant plants are investor-financed rather than constructed by utilities using ratepayer dollars primarily to serve their own customers.
Arizona has more than 20 new plants -- including some merchant operations -- under construction, permitted or planned.
And in some states -- Pennsylvania, Texas, Maine and Illinois -- competition has successfully led to electric price cuts of up to 20 percent, he said.
Many states are taking a wait-and-see attitude when it comes to implementing competition, basing their plans on how things work out in the pioneering states.
Additional problems could show deregulation was a bad idea, Joskow said.
"If another California crisis emerges, the era of competition and restructuring is likely at an end," Joskow said.
