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COMMENTARY
Electric consumers need protection
(Published May 17, 2004)

By ELIZABETH A. NOEL

Recent news reports about electric price caps ending in the Potomac Electric Power Co.'s Maryland service territory have led to a number of inquiries to the D.C. Office of the People's Counsel. D.C. consumers now want to know: What will happen to our electric bills when the price cap on the "generation rate" portion of their PEPCO bills expires in February of 2005? The answer is: electric rates will go up, and rate regulation is not available to stop the increase.

If ever there were a moment for a proper historical context, it is now. Recall in 1999, "electric restructuring and consumer choice" were all the rave in those states with high energy costs, desperately seeking access to low-cost power in other parts of the country. Ironically, the District of Columbia, which at that time had one of the lowest energy rates on the east coast, jumped on the bandwagon, too.

Legislation was passed paving the way for "restructuring the electric market and consumer choice" and for PEPCO to sell its generation plants. These actions have highlighted the economic efficiencies of ownership and rate regulatory protections. Proponents of "retail competition" promised consumers it would emerge and bring with it a slew of new alternative new energy suppliers. They would then compete to serve consumers, and thereby, provide cheaper competitive alternatives to the rates and services offered by a traditional utility monopoly company, in this case, PEPCO. Remember: At that time, the average per kilowatt hour rate was 7.03 cents, one of the lowest on the east coast. Ah, the good old days.

Attorney Fran Francis of the Apartment and Office Building Association, which represents thousands of residential apartment homes and businesses in metropolitan Washington has been quoted as saying "D.C. should see the handwriting on the wall . . . ." She is right. And, this is indeed what the Office of the People's Counsel has advocated for the past five years.

The D.C. Office of the People's Counsel (OPC) was the lone voice of dissent, though not to retail competition per se. Rather, OPC realized that because the District had been reaping the benefits of reasonable rates and quality service from a well-managed electric company, "electric restructuring" and the resulting "divestiture of generation assets" were unnecessary. Moreover, OPC believed neither of these actions would necessarily result in a vibrant retail competitive marketplace producing lower rates for residential consumers in particular.

OPC knew no magic wand existed to protect D.C. consumers from consumer confusion about a "choice of suppliers" and rates and from the uncertainty of the availability of cheaper, competitive options and quality of service. OPC advocated for and was able to move the regulatory authority discussion to include extended "price caps." Then as now, OPC believes consumers require protection from the likely chaos and price spikes to be met on the long and rocky road to a vibrant, efficient, robust and competitive retail marketplace, if ever this is to happen.

Now, as D.C. draws near to the day of reckoning, there are dangerous signs that price caps will end long before the emergence of a vibrant competitive marketplace and the emergence of lower price competitive alternatives. The truth is that PEPCO remains the District's incumbent and predominant energy supplier. And if, as in Maryland, PEPCO is selected as the default or "standard offer service" supplier, then consumers will have no real competitive choice except the unregulated subsidiaries, Pepco Energy Services and Washington Gas Energy Services. Alas, there is no rate regulation for their rates and no one to put the "genie back into the bottle."

The Maryland experience teaches that "competitive market forces" have not saved residential consumers. As expected, large commercial customers had the clout to cut their deals early because suppliers wanted to serve large consumers, with few financial risk factors. By contrast, residential consumers are not as desirable – at least, not at this time.

So, what does the handwriting on the wall say? First, the D.C. Public Service Commission should seriously consider extending the price caps already in place. As other states can attest, neither the existence nor absence of price caps prohibits nor spurs the emergence of serious competitive alternatives. Rather, the energy market determines whether it is economic for suppliers to serve. Second, serious consideration must be given to permit D.C. residential consumers to participate in an opt-out Municipal Aggregation Program as is available in Maryland. Such an approach would create a desirable large customer class with clout. Third, there must be clear and uniform rules for licensing alternative energy suppliers. If D.C. consumers can have any hope for reasonable electric rates, now is the time for action, regardless of what positions may have been taken in the past.

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Noel is the people's counsel for the District of Columbia, charged with representing consumers in utility cases.