Why It’s Not "Deregulation"

We have long made the point that competition in electricity is not “deregulation.”  This is because of the facts, not spin.  Despite the removal of monopoly price controls, organized competitive electricity markets are closely overseen by governmental regulators and independent market monitors to ensure against market manipulation and the exercise of market power.

But don’t take our word for it.  Hear what John Hanger, Secretary of the Pennsylvania Department of Environmental Protection, said at a conference last week in Harrisburg on the economic and environmental benefits of competitive markets.  It was hosted by Citizens for Pennsylvania’s Future, a Pennsylvania environmental group he used to lead.  Prior to that, he was a Pennsylvania utility commissioner who helped implement the state’s 1996 restructuring law.  Here’s what he said about why electricity restructuring is not deregulation:

Pennsylvania’s 1996 electricity competition law didn’t “deregulate” the retail power market, and the wholesale power market serving Pennsylvania is not a “deregulated” market, Secretary Hanger said.  “It’s a competitive wholesale market. It’s not a deregulated wholesale market. There are incredibly important roles for regulation and regulators.  That’s a lesson we learned the hard way,” he said, drawing a clear contrast between competitive power markets and the crisis that occurred in the financial markets. “There’s a difference between competition and deregulation.  There’s a difference between competition, and regulators enforcing rules that require competition,” he said. “I believe in markets, but markets have rules and you have to have regulators to enforce the rules.”

Pennsylvania regulators should be commended for the measured approach they have taken to foster competition in the state, added Ron Cerniglia, director of national advocacy, government and regulatory affairs at marketer Direct Energy, a COMPETE member. Cerniglia joined a number of other electricity retailers, suppliers and consumers who served on various panels throughout the day-long conference, including representatives from COMPETE members Wal-Mart, Leggett & Platt, Constellation Energy, and PPL Electric Utilities.

Before the 1996 state law opening Pennsylvania’s electricity market to competition, there was no renewable energy, poor electric system reliability, nuclear plants operated at about a 60 percent capacity factor, and Pennsylvania consumers paid 15 percent more than the national average for their electricity supplies.  Today, thanks to competition, Pennsylvania is a leader in wind energy, nuclear plants operate at capacity factors above 90 percent, and the cost of electricity for the state’s consumers is 5 percent below the national average. Hanger described the state’s experience with electricity competition as a testament to the inscription on the state capitol building in Harrisburg: “Dare to do the right thing and trust the consequences to infinite wisdom.”

We couldn’t agree more. That’s what we have in the organized competitive electricity markets: well-regulated competition in the public interest, not “deregulation.”  Restructuring of electricity markets replaced faulty monopoly regulation with well-managed competition to determine prices for generation output.  The transmission and distribution of electricity remains highly regulated, and strict environmental rules are enforced whether the generator is in a competitive market or monopoly regulated. And the markets that determine prices are policed by governmental regulators and market monitors to ensure a competitive outcome. Despite the advent of competition, the electric industry remains highly regulated.  Competition doesn’t equate deregulation.

Joel Malina | December 9, 2009