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Electricity industry restructuring has hurt the economy, review by CFA and APPA finds

From the December 14, 2012 issue of Public Power Daily

Originally published December 14, 2012

By Robert Varela
Editorial Director

Studies of wholesale electricity markets and data from those markets demonstrate that excessive generator profits and higher electricity prices for consumers are due to the restructuring of these markets, a comprehensive review by the Consumer Federation of America (CFA) and APPA found. The restructured electricity markets cost consumers, businesses and factories more than $10 billion each year, according to the analysis, Have Restructured Wholesale Electricity Markets Benefitted Consumers?

"These data show that the economy has been significantly and adversely impacted by electricity industry restructuring, as it has been practiced," the report concluded. The analysis of the potential impact to consumers conducted by CFA and APPA describes the most problematic features of the restructured wholesale electricity markets operated by regional transmission organizations and the primary evidence of the adverse impacts of the markets.

The detrimental impact of these markets has been partially obscured by declines in electricity prices over the past few years. The price drops are primarily the result of reduced electricity consumption and sharp declines in the price of natural gas, both of which are external to RTO operations. Despite these falling prices, significant gaps persist between electricity costs in restructured and those in regulated electricity markets—a price differential that has directly fed the high profits earned by unregulated merchant generation owners, APPA said.

"It is crucial that the Federal Energy Regulatory Commission determine whether RTO markets are in fact producing electricity prices that are just and reasonable, as required by law, and, if not, to implement needed reforms," said CFA Executive Director Stephen Brobeck, who authored the study with Elise Caplan, manager of APPA’s Electric Market Reform Initiative.

"It has been exactly five years since 41 national and regional industrial and consumer representatives asked the commission to comprehensively investigate the justness and reasonableness of wholesale power supply prices in the markets administered by RTOs," said APPA President and CEO Mark Crisson. "Although FERC rejected that request, the evidence continues to mount that these markets are simply not competitive and are detrimental to the economy."

The analysis has been published in and is available on the CFA’s web site.

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