GAO Assesses Deregulation
Deregulation of wholesale electricity markets in the U.S. has resulted in “periods of substantially higher prices in some areas of the country” and a patchwork of electricity markets, according to a congressional report released Wednesday.
Citing market manipulation in the West during 2000 and 2001 and rising power prices nationwide, the Government Accountability Office said in a report that the deregulation of power markets had been a negative experience for some people.
“As consumers in California and across other parts of the West will attest, there have been many negative effects” of deregulation, the report said. The accountability office is the investigative arm of Congress.
Total wholesale power costs in California increased from $7.4 billion in 1999 to $27 billion in 2000, according to the California Independent System Operator, which operates the state’s electricity transmission grid. Federal regulators found evidence of “significant market manipulation” in Western energy markets, including questionable trading strategies by Enron Corp. and others.
Blackouts plagued the state, Edison International’s Southern California Edison Co. and Pacific Gas & Electric Co. amassed huge debts buying electricity for their customers and Pacific Gas & Electric, a unit of PG&E; Corp., filed for bankruptcy protection.
Backers of deregulation contend that the recent power price increase is the result of higher fuel costs, and consumers would have paid more for power in the last decade if deregulation never occurred. A study released Oct. 19 by Cambridge Energy Research Associates said U.S. consumers had saved about $34 billion since 1997 compared with projected costs under traditional utility regulation.
Wednesday’s report also said the lack of standardized rules for the state and regional power markets had hindered the potential benefits of competition.
Federal regulators have “acknowledged that the lack of consistent rules can lead to discrimination in access, raise costs and lead to reliability problems,” the report said. The Federal Energy Regulatory Commission abandoned its effort to standardize market designs this year after facing substantial criticism from lawmakers in the Southeast.
“The lack of consistent rules among restructured wholesale markets limits the extent of competition across wholesale markets and, in turn, limits the benefits expected from competition,” the report said.
