Market led to shortages, not lower prices

Market led to shortages, not lower prices

By Gary A. Long
For the Monitor
February 17. 2007 9:30AM

Energy use in New England is increasing steadily, nowhere faster than in New Hampshire. Yet no major power plants are under construction in the region.

The region's wholesale electric energy pool manager, ISO-New England, projects that shortages could occur by next year. It predicts that energy demand by 2015 will require 4,300 megawatts of new generation capacity, the equivalent of about nine large new power plants.

ED NOTE:People are starting to wake up to the fact that deregulation of electrical power has increased prices and decreased reliability. This is an editorial from the backwoods of New Hampshire. Yep, they are waking up.

Follow up:

Because it takes three to five years to build a gas-fired power plant, it may already be too late to avert summer shortages during peak load periods in the next few years. If we wish to avoid a far more severe energy crisis in the next decade, the time to act is now.

Historically, the region's power plants were owned and operated by integrated, state-regulated utilities that sold electricity to consumers within given service territories. All utilities operated under common rules as part of the New England Power Pool to ensure electric reliability and the efficient operation of power plants.

Today, under restructuring, power plants continue to operate under common regional rules, but the ownership of most has changed, and the rules are more market-driven. More than 90 percent of the power plants owned in New England are considered "merchant plants." They are not subject to state economic regulation but instead are operated to produce financial results for their owners through the wholesale electricity market.

At the retail level, in general, an "open access" system dominates in New England. Consumers can choose to buy electricity from anyone in the pool of competitive suppliers.

All New Hampshire utilities, exclusive of municipal electric systems, also operate an open-access system for consumers. However, Public Service Company of New Hampshire is unique in that it continues to own and operate state-regulated power plants. These plants operate exclusively to serve the needs of customers who choose not to purchase electricity from an alternate supplier in the open market because of higher costs, inconvenience or lack of choice.

Some argue that the variety of models operating in the region undermines the competitive market. They assert that all power must be generated by merchant plants to achieve the hoped-for results: lower-cost electricity, ample supply and customer choice.

Throughout the United States, however, multiple electric industry business models have operated successfully within a wholesale market region where all participants are subject to the same rules.

New Hampshire's state-regulated PSNH power plants account for only 3 percent of the region's total electric energy production; PSNH is far too small to alter the regional market.

But the manner in which PSNH and other regulated utilities manage their power supply has a significant impact on customers. If a "one size fits all" approach is the answer, the market should already be producing the hoped-for benefits since the New England market is already dominated by merchant plants.

Instead we face a critical near-term shortage, competitive energy suppliers are showing little interest in selling to retail consumers, and customers across the region face unprecedented rate increases.

In sharp contrast, PSNH customers are benefiting from our state-regulated power plants, which are producing some of the region's lowest-cost electric energy. New Hampshire today has the most flexible model for managing energy prices and future supply, putting the state in a regional leadership position for attracting jobs and economic growth.

Through its policies, the state can play an important role in determining how the regional energy market affects citizens. It can help add much-needed capacity by developing a more progressive siting process for power plants - especially renewables like wind farms and biomass.

Policymakers can also work with regulated utilities to increase generation dedicated to local residents and businesses. To help solve the region's energy shortage and provide direct benefits to consumers, New Hampshire should remove its restrictions precluding state-regulated utilities, like PSNH, from building power plants.

In an industry where any solution agreed upon today can take several years to realize, New Hampshire needs to act now to protect its citizens from a looming regional energy crisis and higher prices than necessary.

(Gary A. Long is president and chief operating officer of PSNH.)