Janee Briesemeister Senior Policy Analyst at Consumers Union Southwest Regional Office

Electricity Restructuring: Success Stories Don't Read True (April 2003).

Restructured Markets in Texas, Pennsylvania, New England - Pointed to as Successes, Actually Exhibit Critical Failures.

Washington, DC - The Consumer Federation of America, Consumers Union and U.S. Public Interest Research Group released a study March 28 analyzing problems in restructured electricity markets from Massachusetts to Texas that shows the Federal Energy Regulatory Commission's Standard Market Design (SMD) would expose consumers to market power abuses and severe risks of rising prices.

"While FERC points to deregulated "success" stories in Texas, Pennsylvania and New England, in pushing its SMD," stated Dr. Mark Cooper, CFA's Director of Research, "a close look at the real world experiences in these states shows consumers have little to gain from the SMD and a lot to lose."

The study, entitled "A Discouraging Word," finds that in Texas, over 90% of consumers in the parts of the state where electricity has been deregulated have seen price increases that will amount to 30% in the first couple years after restructuring, costing consumers approximately $1.7 billion dollars. Success?

"The problem is that the state of Texas sets the price of electricity in the same way that FERC wants to impose on the nation," Cooper said. "It pays the utilities the highest prices it can find in the market - this leaves consumers to pay the cost of the least efficiently produced electricity for ALL of the electricity that they consume. It's a single price structure in which consumers lose."

"The latest tall tale to come out of Texas is the one about how the state has succeeded on electric deregulation, while everyone else failed," said Janee Briesemeister Senior Policy Analyst at Consumers Union Southwest Regional Office. "Most consumers in the state are paying more for electricity today than before deregulation-- a lot more. We've seen it all in Texas--"gaming," price spikes, bankruptcies, cancelled power plants, transmission constraints, inaccurate billing, operational problems, and a skyrocketing number of consumer complaints."

The CFA-CU study points out that in the SMD, FERC proposes to extend its "charge-whatever-the-market-will-bear" approach from generation, to the sale of transmission services - a system it calls locational marginal pricing (LMP).

"The bad news may not be over for Texas," Cooper noted, "as it is being pressured to adopt LMP pricing. One study indicates the price of transmission congestions would almost quadruple, from just under $248 million per year to over $950 million." Success?

The Attorney General of Massachusetts discovered that the realities of market power have not been considered by regulatory agencies and the switch to LMP would result in "projected rate increases for the metropolitan Boston/Northeast Massachusetts Area (NEMA) - apparently at least 14.2 %." Success?

While prices are rising and manipulators are manipulating, residential consumers see no benefits from competition in the market, and few if any have switched to a competitive supplier. Success?

• In Texas 93% are still with their utilities.

• In Connecticut, the last competitor to service residential customers recently pulled out of the state.

• In Pennsylvania the number of consumers who voluntarily switched their electricity company has plummeted, dropping by one-half.

"In states where deregulation of electricity has gone forward, consumers were promised the choice of cleaner and cheaper power," stated Anna Aurilio, Legislative Director, U.S. Public Interest Research Group. "What we got instead was a choice between dirty and filthy power at higher prices. Key leaders in Congress are ignoring these problems and will make matters worse by repealing consumer protections instead of strengthening them."

The paper concludes that, "Disregarding all of these problems the FERC and Congress are charging ahead with restructuring, seeking to impose it on the three dozen jurisdictions that understand the risks it poses to consumers. This is a case where the cure is substantially worse than the disease. The stampede to restructuring has stopped in the states, it should stop at the FERC."

A complete copy of Dr. Cooper's paper can be found at: www.consumerfed.org/2003_discouraging_report.pdf