Rethinking deregulation

Maine’s adventures in energy deregulation have only just begun so it may be too early to draw conclusions about its chances for success, but a question of how small energy users (homeowners and some small businesses) in a low-population state are to attract enough major competitors to lower prices has never been fully answered. Arthur W. Adelberg, in a recent commentary, provides one interesting solution and his ideas should be considered by lawmakers this winter.

Mr. Adelberg, a former executive vice president with CMP Group, is now an energy consultant in Portland. His advice to small users in a deregulated market is, in effect, give up, at least partly. “While retail competition makes sense in theory, in practice suppliers are mostly interested in marketing to large users, and only large users are truly interested in shopping for supply,” he wrote Tuesday in the Portland Press Herald.

Instead of trying to fight this phenomenon, which is also occurring is states considerably larger than Maine, he says, “The retail market could be fully deregulated for large users, while smaller users would continue to get the benefit of limited regulatory oversight.” The energy market is not completely deregulated now, so there already is some oversight for both large and small users, but returning the small users to something closer to the old regulatory model would offer some protections against the prices that come as the result of an indifferent market for supply.

Rather than viewing the overwhelming number of small users under the standard offer rate as part of an interim step to fuller competition, Mr. Adelberg asks, why not view their condition as the goal? Doing so would solve the conflict between keeping prices low for customers but at the same time providing incentives for energy suppliers to get into the market. “Abandoning the quest to promote entry into this market frees regulators to set standard offer prices as low as reasonably possible,” he says.

Small customers could still gain under a partly deregulated market through continuing to put the standard offer – which would then include a larger, assured load – out to bid on the wholesale market, providing an incentive to bidders to offer a lower price.

Mr. Adelberg closes his commentary with an astute political observation: “Taking retail choice off the table for small customers may help lessen public anxiety about the ramifications of deregulation, making it easier to move forward with those aspects of the policy that have support.” The Legislature’s Utilities and Energy Committee would do well to set aside some time next session to consider these important ideas.