Despite Enron And California, Retail Electricity Reform Has Not Been Zapped

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Forbes discusses the benefits of electricity choice and the states that have weathered the “storms,” and how such states are entering a new phase of electricity restructuring.

Written by Ken Silverstein

Most thought that electricity deregulation had been zapped after Enron’s failure and the California’s market collapse in 2001. It did sputter. But some states have kept it going and they are boasting success, although the rules that govern such a restructured marketplace are always being refined.

The whole premise is based on competition and getting electricity suppliers to try and one-up each other when it comes to delivering their product to businesses and homeowners. The more folks who are plying the trade, the better the prices and services will be — at least in theory.

The reality is that electricity is an essential commodity, which many think should not be left to the whims of market conditions. Prices can gyrate and that can leave unwitting customers in a bind. Those living in California remember all too well how their rates soared at the height of state’s experiment with deregulation — and how some power marketers toyed with the system to keep their profits high at the expense of helpless consumers.

About a dozen states allow commercial, residential and industrial customers to choose which providers supply their air and heat. Two such states are Ohio and Texas, which have weathered the storm and which are entering a new phase of electricity restructuring. Ohio, for example, allows consumers to pick either the regulated rate — the default option — or to shop for the best prices and service.

The competitive suppliers say that they are disadvantaged because many folks are too passive and just go with the incumbent provider at tightly regulated rates. The free marketers want to get consumers up-to-speed and to enable them to make real choices, and not to rely on the old ways of doing things. To do this, they need that default option removed. But consumer advocates disagree, saying that many people don’t have the means or the desire to shop around.

However, “By keeping costs down, driving innovation, and empowering consumers to make customized procurement decisions for one of their largest and most volatile operating costs, competitive electricity markets spur job creation and makes us more competitive in the national and world economies,” say 15 businesses with the Compete Coalition, in a letter to states considering restructuring. Among the companies: Wal-Mart, Rite Aid RAD -0.54% Corp andLoews L -0.28% Cos.

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