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D.C.’s experiment in electricity deregulation is switching off consumers.
The bluish-green pamphlet arrived in the mail a few months back, sans a warning from the Surgeon General that its contents might induce dizziness or drowsiness: “Pepco Answers: Understanding Your New Electricity Options.”
Potomac Electric Power Co. (PEPCO), which has kept the lights on in the Washington, D.C., metropolitan area for more than a century, was dropping its 1.9 million customers a line to let us know that it was no longer the only source of juice in townand that my Mount Pleasant group house would be the better for it.
Last year, D.C. Mayor Anthony A. Williams signed legislationsimilar to laws passed in 26 other statesthat opened up the city’s electricity market to the oscillation between supply and demand, and the greater offering of services that this may bring. In the brave new world of “customer choice”the energy industry’s preferred, consumer-empowerment-friendly euphemism for what’s known as “energy deregulation”I might be the one giving PEPCO a power outage, rather than the other way around.
The law allows me to choose my electricity supplier, or in industry lingo, “generator.” Even PEPCO seemed excited by the idea. “The new customer choice law will benefit the people of Washington by giving consumers the same opportunities as those in neighboring states,” announced PEPCO Chair and Chief Executive Officer John M. Derrick in a formal statement released shortly before Williams’ signing.
D.C.’s new deregulation law took effect on Jan. 1. A few months later, with pamphlet in hand, I plunged into the informational tidbits and colorful graphics of the “Choice PACK” provided by PEPCO, which explained the distinctions between electricity “generation” and “transmission” and “distribution.” In short, PEPCO has largely gotten out of the generation business, but it remains in the transmission and distribution businesses. The utility no longer owns the power plants, but instead purchases power on the open market. PEPCO still delivers the electricity to my house, however, and it repairs downed or damaged power lines.
As I struggled through sheets of paper with titles such as “How to Choose a Supplier,” “Price to Compare,” and “Customer Choice Checklist,” a Krispy Kreme glaze began to coat my eyes.
I daydreamed about free toasters. Football phones. Refrigerator magnets. The consumer swag that comes from competition.
In the ’80s, I received a set of Norman Rockwell baseball-themed coasters for switching from Mercantile Bank & Trust to Signet Bank. The fierce competition for my long-distance-telephone-service dollarfrom AT&T to MCI, back to AT&T, and then to Working Assetshas earned me a few $20 checks and a couple pints of Ben & Jerry’s.
I contemplated what new millennium power booty might be on offer.
It couldn’t hurt to own a Palm Pilot.
According to the Web site of the D.C. Public Service Commissionwhich oversees implementation of electricity deregulation in the Districtsix electricity suppliers have thrown their hats into the ring: Allegheny Energy Supply of Greenburg, Pa.; First Energy of Akron, Ohio; Washington Gas Energy Services of Herndon, Va.; Washington Energy Consortium of Baltimore; AOBA Alliance Inc. of Washington; and PEPCO Energy Services Inc. of Washington.
Let the freebie-fest begin! I dialed the western Pennsylvania area code for Allegheny Energy and found myself on the line with a customer-service rep. I explained to her that I wanted to take advantage of the “customer choice” in District electricity, and I sat back to let the courting, sweet-talk, and outright bribery begin.
Instead, I was met with silence.
“Hold on one moment,” the rep instructed me, with a puzzled tone. She returned after approximately four minutes of Muzak.
“We don’t provide electricity to D.C.,” she finally said. “Check our Web site in a few months. Maybe we will in the future.”
I proceeded down my list. Of the five remaining potential suppliers, anotherFirst Energytold me that it didn’t provide power to the District. Two othersAOBA Alliance, which stands for the Apartment and Office Building Association, and Washington Energy Consortium (aka “Energy Services Management”)told me that they only provided electricity to large customers such as office or apartment buildings. After three phone calls and much confusion, Washington Gas Energy Servicesthe monstrous gas utility in the D.C. metropolitan areatold me that it would soon provide electricity to D.C. residential customers.
For the moment, that left me with only one “customer choice”: PEPCO.
D.C. isn’t the only place where retail consumers have only the illusion of choice. In Massachusetts, for example, records kept by the state’s Division of Energy Resources show that less than 1 percent of that state’s homeowners has chosen to purchase power from an alternative generator.
Massachusetts Public Interest Research Group energy attorney Derek Haskew says that there’s a good reason for that: “There is no real retail competition in the state.”
To illustrate, Haskew launches into a story about his mother, who recently moved to the Boston area. She called the list of electricity suppliers provided by the state, and after hours of phone calls and explanations, she ended up choosing Boston’s equivalent of PEPCO, mostly because the “choices” that she was offered were unavailable to residential consumers.
D.C. residential customers have received one tangible benefit from the deregulation hoopla: a 7 percent reduction in their electricity bills. Rates will be capped at that level over the next four years. As PEPCO helpfully notes in its materials, loyal customers like me will get that lower price because of a legal agreement that was a condition of the sale of PEPCO’s generating plants.
In some ways, the lower rate is an opiate for the masses. It’s also a major obstacle to competition. “You’ve been given a price that [new] providers can’t match,” says Stephen Rosenstein of Energy Services Managementa consortium that helps businesses and other commercial users in the D.C. area purchase electricity and natural gas. Rosenstein explains that Energy Services deals only with large commercial customersoffices and apartment buildings, for examplethat “aggregate,” or gang up, to buy energy directly from generators.
The rate cap may make residential customers happy in the short run, but some observers argue that there may be long-term consequences when the unfettered weight of a deregulated market kicks in.
When the D.C. Public Service Commission held a hearing on the progress of electricity deregulation on April 26, Brian Lederer, who represented the International Brotherhood of Electrical Workers, testified about that possibility. “When the price caps come off,” said Lederer, “in the general public’s point of view, they’re going to see higher prices, and yet the promise was lower prices.”
Elizabeth Noel of the D.C. People’s Counsel, whose job is to protect utility customers, argues that residential consumers should gang up, too. “The way residential consumers can benefit is through aggregation,” observes Noel. The D.C. law allows for a municipal aggregation program, Noel sayswhich means that local government and homeowners can group together to purchase their electricity in bulk and thus benefit from economies of scale offered to commercial customers.
“What residential consumers have to do is come together,” Noel argues. “Without it, I don’t see any competition.”
D.C. Public Service Commission Chair Angel Cartagena agrees that the PEPCO rate cuts have created a disincentive for competitors to enter the residential market. But Cartagena urges patience with the process, quickly shifting the discussion to how electricity deregulation may soon come to mimic similar changes in the telephone market.
“Most companies had a business plan that had a two-step approach: First, enter the commercial market, and then, once a foothold has taken place, on to residential,” he explains. “In the long term, we’re hoping to see the kind of savings that come from the efficiencies of a competitive market,” says Cartagena. He admits, however, that no one really knows what will happen when caps on electricity prices expire.
Even PEPCOin its “Choice PACK”acknowledges that it is not prescient about the effects of deregulation.
In response to a “Frequently Asked Question””Will I notice lower rates over time?”the utility replies, “Although competition historically leads to lower prices over time, the market determines prices after deregulation. It is impossible to know in advance if you will experience a reduction in your bill.”
In the short run, guess I’ll put that Palm Pilot on the holiday wish list. CP