Regional Power Markets: Roadblock to Choice?

Fortnightly Magazine - October 1 1997
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Competition abounds at wholesale, but retail is another story.

Will geography, politics and regional economics stand in the way of real choice for electric consumers at the retail level? Consider this tale of two power players.

One competitor, the Indiana Municipal Power Agency, is proud of itself. In its annual report, IMPA says that open access and competition in the wholesale market allowed it to trim wholesale rates for power it delivered to member distribution companies in 1996. "The results were remarkable," the report reads. "Rates to members decreased by more than 5 percent for the second consecutive year."

But take a look at Duquesne Light Co., an investor-owned utility. Like the IMPA, Duquesne has made progress at wholesale, where its rates appear competitive. Yet its retail rates rank among the highest in the nation. Apparently, Duquesne's retail customers pay a heavy subsidy to its wholesale buyers. Will consumer choice put an end to such anomalies?

Overall, any correlation between wholesale and retail power markets appears tenuous at best. The ratio between wholesale and retail prices varies widely from utility to utility, even though both are supposedly based on cost. The rates are set by different regulators, state and federal, and so have never been reconciled.

So what did the National Energy Policy Act of 1992 do for wholesale competition? Not much, at least not yet. In fact, deregulation of wholesale power has not made a huge difference. Moreover, where it has wrought change, the market faces a reckoning with environmental concerns, capacity problems and legal issues. On the other hand, prices are down, competition is up, and the power brokerage business is booming. The glass, while filling slowly, is at least filling.

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