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Low-Cost States Gain under Customer Choice, Study Says

Low-Cost States Gain under Customer Choice, Study Says

The notion that electricity customers in high-cost states will obtain lower priced power under retail competition at the expense of customers in low-cost states was debunked in a pipeline-backed study released last week.

The study, which was commissioned by the INGAA Foundation, concluded that "all consumers, in both high- and low-cost states, stand to benefit from a competitive retail electricity market" in the years ahead.

The study hopefully will "contribute to a rational discussion of the issue" on Capitol Hill, where concerns exist about whether customers in low-cost electricity states, such as Kentucky and in the Pacific Northwest, will reap any measurable benefits from customer choice. The results indicate the benefits will be considerable for these customers "contrary to what some people are saying," noted Anne Roland, executive director of the INGAA Foundation.

Specifically, the study said that while competition may cause electricity markets to become more integrated and prices to move toward convergence, the differentials in regional pricing still will continue as the retail markets are opened up. This will be largely due to the fact that transmission costs and capacities between and within regions place limits on power flows. As a result, "such constraints mean that low-cost regions should continue to enjoy lower than average costs while high-cost regions attract new suppliers."

In addition to price relief, "competition...can be expected to significantly improve efficiency since in deregulated generation markets, sellers - not consumers - will bear the risk of excess generation capacity," the INGAA Foundation study noted.

Susan Parker

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