There’s a fascinating article in the NY Times today that reports that electricity prices in deregulated markets – where competition is supposed to benefit the consumer and keep prices at fair market value – have actually increased at a rate faster than in those markets where electricity prices are regulated. This has led to a shift in thinking about the true effectiveness of deregulated markets. Some states are so sure their deregulated systems are broken they’re taking steps to return to the status quo. Virginia, for one, has repealed is deregulation legislation.
Similarly, Illinois Gov. Rod Blagojevich just signed a bill that provides $1 billion in rate relief to electricity customers, seemingly because of the unexpected hike in rates. Blagojevich is particularly opposed to the kind of “electricity auction” that favors huge industrial companies and the utilities themselves.
Many of the former advocates for competition have reversed themselves and are now arguing for the return to regulation. The reason: They don’t feel they got what they originally wanted. Loopholes in the laws and the failure to create actual competitive markets mean the laws haven’t worked the way real advocates of competition believed they should.
One explanation for these problem is that lawmakers didn’t have the expertise in or knowledge of economics to be able to judge whether their laws would create a market or an oligopoly – a few companies banding together to create artificially high prices.
But when it’s all said and done, the best evidence is pure numbers. One study of 11 competitive markets showed that power was 4 cents per kwh more in those markets than in regulated markets, a 2-cent increase since 2000.
Of course, there’s always the exception – California is looking at legislation to expand its deregulation law. As is often the case in energy issues, California is again an island.