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Can regulation be fair and equitable?

Mississippi holds good hand in deregulation game

Editor’s note: This is part four of a series of articles examining power deregulation issues in Mississippi.

Plug it in and it works. For a fair and reasonable price. That’s all consumers and providers want. And Mississippi holds a good hand in the electric power deregulation game, starting with one of the lowest rates per capita for electricity.

Three of the largest power companies in America serve the state and an abundance of new generation capability is being built within our borders.

Even though everyone agrees that deregulation will eventually become a reality in the long run, can it be fair and equitable? And can we get there without losing stability in the market?

Last week, a power alert was in effect for Californians, a day after the state’s first rolling blackouts in more than two months — the first deliberate blackouts in Southern California since World War II. Two previous blackouts in mid-January affected only the northern and central parts of the state.

Last December, the Federal Energy Regulatory Commission (FERC) issued a major order establishing a set of important remedies, eliminating the requirement set by California lawmakers that IOUs (investor-owned utilities) sell all generation to and buy all power needs from, the California Power Exchange. A benchmark price of $74 per megawatt-hour for assessing prices of long-term electric supply contracts was adopted. In an effort to reduce the real-time spot market to about 5% of peak load, FERC initiated a penalty charge that would be imposed on market participants under schedules load in day-ahead or other forward markets.

“If California had not capped consumer rates and allowed utilities to pass the wholesale cost on to consumers, then consumers would have started to conserve electricity and supply and demand would have evened out,” said Mississippi Public Service Commissioner Michael Callahan, who represents the southern district.

As a result, PG&E and SoCal Edison said they have lost $13 billion since last year because wholesale electric rates have soared and the state’s 1996 deregulation law prevents utility companies from passing the costs on to ratepayers.

“People say now that they knew California’s deregulation was going to be unsuccessful, but if you go back to our first and second hearings, proponents of deregulation were saying how great everything was going to be in California, but they seem to have forgotten what they said three years ago, even though it’s all on tape in sworn testimony,” said Mississippi PSC Central District Commissioner Neilsen Cochran.

“California’s markets were wide open to independent merchant competition,” he said. “The problem occurred when people pushing for and initiating open competition found out they couldn’t make money at the residential level. If independent systems operators in an open competitive market in Los Angeles are pulling out because they can’t make money in a high-density area, then how are you going to make money in Panther Burn or Star, Mississippi?”

FERC Commissioner Linda K. Breathitt told attendees at an economic conference in New York last month that “this has been a big wake up call for electricity ratepayers.”

“It’s important to stress that the flawed electricity markets that

exist in certain areas of the country today are not at all what proponents of restructuring intended when this process was initiated at both the federal and state levels six to eight years ago,” she said. “Unfortunately, consumers and elected officials are unlikely to have much tolerance for these inefficient and problematic markets if they are allowed to persist long-term. In fact, consumers in California are already calling for ballot initiatives that would roll back utility restructuring in that state and perhaps even revamp California’s system for distributing electricity to consumers.”

Several states that had already approved deregulation plans and had even signed them into law now appear to be delaying implementation, including Arkansas, Montana, Nevada, Oklahoma and West Virginia, she said.

“The other states that were actively investigating deregulation — Minnesota and North Carolina — have already stalled their efforts,” she said. “Even in my home state of Kentucky, which had previously decided to adopt a go-slow attitude toward restructuring, elected officials are now citing the California problem as a reason to slow even further any movement toward restructuring.”

In Pennsylvania, the state’s brush with deregulation success might short-circuit when the heat rises this summer and “reality comes crashing down,” Callahan said.

But in Texas, deregulation might work because of the state’s closed system and abundance of generation capacity within its borders, he said.

“Texas’ grid is completely shut off from everybody else,” he said. “Only three states in the country can sell electricity and it not be interstate commerce — Alaska, Hawaii and Texas — but Texas may be the only state that could deregulate and not see skyrocketing prices.”

Mississippi’s electric power associations can choose to opt in with a deregulation plan, or they could present a proposed plan to open up their areas for competition, Cochran said.

“Our staff put together a hypothetical scenario and a proposed plan to show how we could envision moving toward competition, but the proposed plan for deregulation didn’t take into consideration or force EPAs to become a part of that because we don’t have jurisdiction over them,” he said.

Hobson Waits, executive vice president of Electric Power Associations of Mississippi, said there’s nothing in the deregulation schemes that would be good for EPA members, which hold 52% of the meters in the state. If EPAs opted in for competition, it would leave them in a difficult position, he said.

“Under deregulation, the large power companies could undercut the price to our easiest-to-serve customers and leave us with only the customers that are unprofitable to serve because of their location,” he said.

The complication of adding generation with the advent of numerous merchant plants would burden the transmission systems and require extensive and expensive, infrastructure.

“With all the movement of electricity from competition, we’re going to have to address the upgrades of the transmission systems or we’re going to have serious problems,” Cochran said. “Entergy has testified in one of the hearings, where we dealt with power pools, that there would have to be upgrades that would take about five years to put in place to handle true competition so there wouldn’t be any barriers to the movement of electricity.”

Who will pay for it? Good question, Cochran said.

The transmission systems throughout the country were built for the movement of electricity within each power company’s system and were not intended for large-scale interstate movement of power.

“In the last year, FERC has been moving to take over all transmission within the country,” he said. “They already regulate wholesale electricity, not by setting prices, but by setting the cost of transporting over the transmission systems. The federal government wants to regulate the RTOs and then they would be in total control of improvements to be made, where they would be made, who would pay for them and what the cost would be, and we would have no jurisdiction over RTOs. That in itself would increase the electricity bills because RTOs would be run by a for-profit third party.”

Another problem with merchant power plants in the state is that Mississippians can’t buy electricity retail, said Edd Jussley of Energy Consumers for Choice in Missi
ssippi.

“It’s going to be bought at low rates by people outside the state because of the Legislature and the Mississippi PSC,” Jussley said.

That’s totally false, Cochran said.

“We have no jurisdiction,” he said. “B

About Lynne W. Jeter

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