RTO markets aren’t living up to the promise of cheaper power.
Robert McCullough (robert@mresearch.com) is managing partner at McCullough Research in Portland, Ore. Berne Martin Howard (bmh@bmh3.com) is senior vice president, and Michael Deen is a former analyst.
With rapidly increasing electric rates in a number of states — at the moment, Illinois and Texas top the list — a heated debate has emerged concerning the merits of deregulation. Various explanations have been proffered to account for the increases, ranging from the cost of natural gas to the lack of transparency in the restructured markets. A dispassionate analysis using data accumulated by the Energy Information Administration suggests the lack of transparency and the resulting prevalence of strategic bidding may be the best explanation.
There is discussion about what restructuring means, when it began, and how much it has achieved. Adherents of administered markets date it from April 1, 1998, when the complex California agencies started operations. Others date it a decade earlier when the simple, dependable, and far less-controversial Western Systems Power Pool (WSPP) started selling bulk electricity at market rates throughout the western states and provinces. Choosing a start date also signals one’s position. If you choose 1987, you believe restructuring means the creation of open-access markets on the Wall Street model — free entry, open outcry, full disclosure. Choose April 1, 1998, and you believe in tightly centralized markets administered by a central bureaucracy that are its heart.