Electric Deregulation Hasn't Failed; It Hasn't Been Tried Yet

As electricity prices in Connecticut have risen sharply, many elected officials, particularly state legislators and Attorney General Richard Blumenthal, have declared that the state’s experiment with deregulation is a failure and a disaster. They say Connecticut should go back to the old system of rate regulation, under which electric utility companies both generated and delivered electricity.

If deregulation

has been a failure and a disaster, it is, of course, only the General Assembly’s own mistake, and perhaps the Legislature’s most calculated one in history. Indeed, Legislators’ complaints about deregulation are almost laughable. For the Legislature enacted deregulation upon its emphatic determination that Connecticut’s system of regulation — the system to which so many now would return — itself had failed.

Amid the current clamor it is as if no one remembers Ella T. Grasso’s ascent to the governorship three decades ago on a pledge to replace the rate regulation agency, the Public Utilities Commission, with a new, consumer-friendly agency, the Department of Public Utilities Control — the very agency being denounced now for approving the recent rate increases. Grasso’s shakeup was much more form than substance. New commissioners were appointed, but over the years since then electricity rates still rose and fell with the price of energy generally and with government mandates and the taxes imposed on the electric companies.

But Grasso and her successor, Bill O’Neill, were Democrats and so got a pass from their party, while Republicans, either because they are more aligned with business or more cognizant of economics, tend not to make an issue of such things.

Amid the current clamor it is as if no one remembers Ella T. Grasso’s ascent to the governorship three decades ago on a pledge to replace the rate regulation agency, the Public Utilities Commission, with a new, consumer-friendly agency, the Department of Public Utilities Control — the very agency being denounced now for approving the recent rate increases. Grasso’s shakeup was much more form than substance. New commissioners were appointed, but over the years since then electricity rates still rose and fell with the price of energy generally and with government mandates and the taxes imposed on the electric companies.

But Grasso and her successor, Bill O’Neill, were Democrats and so got a pass from their party, while Republicans, either because they are more aligned with business or more cognizant of economics, tend not to make an issue of such things.

u u u

not failed in Connecticut; it has not yet been tried.

The idea was to separate the electricity generation business from the electricity transmission business, push the electric utilities out of the generation business, entice many generating companies into selling electricity in Connecticut through the utilities’ transmission systems, create a competitive market for electricity, give electricity consumers a wide choice of suppliers, rates and terms, and make consumers choose suppliers, much as they now choose telephone service providers.

The problem was that the deregulation law for the most part prohibited generators from charging retail rates higher than were already being charged, and that deregulation took effect just as energy prices began their steepest rise since the oil embargoes of the 1970s, which had given Grasso and other politicians the chance to find a local scapegoat to take the place of the Organization of Petroleum-Exporting Countries. The cap on electricity prices under "deregulation" quickly made selling electricity in Connecticut uneconomic and so no serious generators bothered to enter the Connecticut market — for in fact there

The idea was to separate the electricity generation business from the electricity transmission business, push the electric utilities out of the generation business, entice many generating companies into selling electricity in Connecticut through the utilities’ transmission systems, create a competitive market for electricity, give electricity consumers a wide choice of suppliers, rates and terms, and make consumers choose suppliers, much as they now choose telephone service providers.

The problem was that the deregulation law for the most part prohibited generators from charging retail rates higher than were already being charged, and that deregulation took effect just as energy prices began their steepest rise since the oil embargoes of the 1970s, which had given Grasso and other politicians the chance to find a local scapegoat to take the place of the Organization of Petroleum-Exporting Countries. The cap on electricity prices under "deregulation" quickly made selling electricity in Connecticut uneconomic and so no serious generators bothered to enter the Connecticut market — for in fact there

was no market.

So the old electric utilities, having been compelled to sell their generating plants, were forced to go into the increasingly speculative wholesale power market themselves to buy power to keep the electricity flowing in their lines and to become retailers and middle men again. Some of those purchases proved to be bad deals. But the old utilities had little experience as futures traders. If any state agency suddenly had been put in charge of purchasing bulk electricity, it probably would not have done much better.

So the old electric utilities, having been compelled to sell their generating plants, were forced to go into the increasingly speculative wholesale power market themselves to buy power to keep the electricity flowing in their lines and to become retailers and middle men again. Some of those purchases proved to be bad deals. But the old utilities had little experience as futures traders. If any state agency suddenly had been put in charge of purchasing bulk electricity, it probably would not have done much better.

u u u

will develop after all, if state government ever allows it to.

u u u

want to have an ever-increasing supply of electricity at a low cost without having to endure the burdens and dangers inherent in all forms of electrical generation. But no state may expect to live in such a never-never land as much as Connecticut does.

Pandering to this expectation gets Connecticut’s politicians elected and re-elected. If it really did anything about the electricity problem, the problem would have disappeared 30 years ago.

Pandering to this expectation gets Connecticut’s politicians elected and re-elected. If it really did anything about the electricity problem, the problem would have disappeared 30 years ago.

Chris Powell is managing editor of the Journal Inquirer in Manchester. His wife works for a consulting firm that has clients in the electricity business.