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State Regulator: Clock Ticking to Fix Power Competition Problems

Time is rapidly running out for the power sector to remove the remaining obstacles to sustainable competitive power markets in the U.S., the chairman of the Maryland Public Service Commission (PSC) warned audience members last Thursday at KEMA's 17th executive forum on energy markets in Washington, DC.

"We do have some real problems and we need to start spending more time solving those problems, addressing those barriers to a true, sustainable competitive wholesale and retail marketplace," Maryland PSC Chairman Ken Schisler said.

"We need to really start to spend some time to get rid of those barriers," he said. "I don't think we have a long time horizon to fix those remaining problems that will lead us to a sustainable competitive environment for electricity."

The public policy timeline "is much shorter" than those included in business models, Schisler pointed out. "It is certainly no longer than the next election," he said. Schisler took part in a roundtable of state utility commissioners that included William Flynn, chairman of the New York Public Service Commission (NYPSC), and Paul Hudson, chairman of the Texas Public Utility Commission (PUCT).

Those in favor of electricity competition shouldn't assume that the latest crop of lawmakers, governors and regulators throughout the U.S. are fully on board the competition train. Schisler said that legislators coming into office "are more skeptical" of power competition and "whether there are real benefits to customers." Some new governors are "not as committed" to competition policies as their predecessors were.

As for regulators, Schisler said that Flynn, Hudson and himself are "part of a breed of regulator that I don't think you see today. I mean, you had me from hello," Schisler told the KEMA conference audience. In contrast, there is now a "breed of regulators" entering public service that is not "anywhere close" to being as committed to developing electricity competition policy. "That's a problem. I think that's a problem we're going to have to face up to as an industry," the Maryland PSC chief said.

One short-term problem that the industry is facing relates to the "nasty coincidence" of very high energy prices "coinciding with the expiration" of rate caps "and dramatic increases in supply costs," Schisler noted.

In Maryland, a rate freeze in effect for Baltimore Gas & Electric (BG&E) residential customers is slated to roll off this summer. State lawmakers and Maryland Gov. Robert Ehrlich have voiced concerns about the expected increase in power bills once the rate freeze is lifted.

Legislation has been proposed in the state that would prohibit a power company from increasing the rate for electricity charged to residential customers by more than 5% in any year in which the utility has an obligation to provide standard offer service under a PSC order. The measure, HB 1334, would allow an electric company to recover the portion of the total rate that exceeds 5% through a standard offer service transition charge over a five-year period.

Addressing the benefits-versus-costs debate for competition, Schisler said that the pluses offered by power competition have been "fully masked" by increasing commodity costs to the point where the mass market print media "just doesn't see the benefits." Regardless, Schisler underscored the point that the competitive marketplace has yielded impressive efficiency gains.

Don Nickles, chairman of a coalition that backs competitive power markets in the U.S. and a former U.S. senator, told the KEMA meeting that one of the bigger challenges facing electricity competition involves the pending expiration of retail electricity rate freezes in several states, including Illinois, Delaware and Maryland.

Nickles noted that several states are taking steps to extend existing rate freezes. "That would be a mistake," he said. Just last month, a lawmaker in Illinois filed legislation that would extend a rate freeze in the state through 2009.

Nickles noted that retail rate freezes have served as transition mechanisms in states with competitive retail markets. "They were never, ever intended to be permanent. If they were extended, it would be a serious mistake." He said that while rate freezes have been in effect, fuel costs have skyrocketed in all states -- "those that have restructured and those that did not."

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