ENERGIZING MARKETS

Maine has leapt some two-thirds of the way to competitive electricity prices and has had sufficient time in the last six years to consider the chasm below were it to stop now. Fortunately, the New England region overall seems determined to complete the jump to deregulated markets, but the Senate could help significantly this week as it considers the electricity provisions in its energy bill.

Free-market believers and defenders of the status quo in electricity split predictably in the 1990s: States with high prices, mainly in the Northeast and Midwest, wanted more open markets; states with low costs, in the Southeast and Northwest, did not. The Northeast may have gone furthest by allowing merchant power plants to sell power directly to customers. In Maine, this has worked out for large consumers, while individual residents have depended on a lower-priced standard offer to save money.

Over the short term and after California’s experience with Enron and the Federal Energy Regulatory Commission’s prolonged refusal to intervene, those regions defending the status quo have legitimate reasons to fear the utility reforms. Their residents save on energy now and don’t have creative executives in a free market devising ways to darken their lives with contrived outages and outrageous prices. Long term and with the proper authority conferred upon FERC to provide consumer protections, however, more efficient markets and a freer flow of electricity from region to region should help all states. This can be accomplished through a plan called standard market design, which sets rules for all users of a power grid to be administered by an independent agency.

Now, utilities that have monopolies on service regions have little incentive to expand the capacity of their transmission lines or even to make it affordable for others to use their lines. These conditions block investment, make regional cooperation difficult and local price manipulation more likely, and they keep regions from efficiently using the least expensive, cleanest plants in their areas. Sen. Susan Collins, who has been a leader in advocating for standard markets, recently observed in a letter to the Senate Committee on Energy and Natural Resources, “Congested power lines, which are the result of the current electricity system, cost customers and businesses throughout the United States billions of dollars each year, whereas competitive wholesale power markets will deliver billions of dollars in economic benefits.”

Much of New England will proceed with a regional market whether or not the Senate acts in favor of standard market design, but it too would benefit from becoming part of an even larger region. The Senate has planned to spend much of this week trying to come to agree on its massive energy bill. It is a disappointing document in many respects – on energy efficiency, climate change, renewable energy sources, to name only three. But the standard market design provision is an important addition for this region and should encourage FERC to take a more active role in encouraging free and fair electricity markets nationwide.