Is deregulation dead?

Kathleen Davis, Associate Editor

To some doctors in this scenario, the patient has flat-lined. (Yet, no one wants to call it.)

To others there may be hope for a flicker of brain function under that current coma.

Either way, electric deregulation is a fractured, fragile patient. And, like Humpty Dumpty, it may never be the same again.

“A nutshell look a deregulation in the U.S.? Retail choice has slowed to a screeching halt in most areas of the country,” stated Michael Valocchi, a partner in the energy and utilities strategy area of IBM Business Consulting Services, in a January 2003 interview with EL&P. “But, the issue of standard market design has kept the debate on wholesale competition alive and well.”

“And there’s a huge PR hurdle with deregulation,” Valocchi added. “The average consumer did not ask for this, and, at this point in time, they feel that deregulation is being done to them, not for them.”

The West: California’s legacy

These days it’s apparent to almost everyone that—whether an accurate assessment or a PR nightmare—California started the deregulation backlash.

In the summer of 2000, Mother Nature became a fierce political machine. In those few months, her heat-induced, statewide energy emergencies gave way to votes and re-votes by a California Independent System Operator (ISO) trying to juggle reliability and prices. At the time, it seemed like deregulation and power issues were as much on a faultline as the state itself.

The story started in San Diego, where the average power user saw his electricity bill nearly double between May and June of 2000 due to market fluctuations. (San Diego was the first major open market in the country.) And, with this increase in power prices, there was a loud cry out to the ISO for price caps.

“I think there’s a direct relationship between the unanticipated heat wave and the price cap issue,” stated Jan Smutny-Jones, then chairman of the California ISO board of governors, in a summer 2000 issue of EL&P.

“My biggest concern about monkeying around with the price caps is that it’s sending a signal of regulatory instability, and I don’t think we can afford that,” Smutny-Jones concluded.

Unfortunately, that view of regulatory instability did continue to grow that summer, and in the year to follow.

In November 2000, EL&P returned to Smutny-Jones for continuing comment on the crisis. He said, “San Diego should never have happened. And, there’s no need for San Diego to happen again.”

But, San Diego did happen, and, by the fall of 2000, the finger-pointing was prevalent in California’s deregulation arena. In a mid-September 2000 field hearing of the House Commerce Energy and Power subcommittee, San Diego Democrat Rep. Bob Filner painted power generators as masters of a plotted economic game, going so far as to say that those generators were “robbing people of their livelihoods, even threatening to murder people’s businesses.

“That’s criminal to me,” he added.

Filner, along with a number of other San Diego representatives called on FERC to roll back rates, even threatening to mandate a bill on the matter.

And legislators weren’t alone in their disgust with the electric restructuring situation in the Golden State. Utilities, generators, and traders also put in more than two cents on the subject. In 2000, Stephen Baum, chairman, president and CEO of Sempra told FERC that the California market was, for all intents and purposes, “broken,” and Enron Corp.’s then president and chief operating officer Jeffrey Skilling labeled the entire North American wholesale market as “screwed up” during a press briefing—moving on to imply that it needed to be re-examined.

And, on top of the financial woes and calls to take a second look at California’s attempt at deregulation, many in the power industry were being painted as villains in the melodrama surrounding the state’s lack of power. In early December 2000, a suspicious California Public Utilities Commission, along with the California ISO, sent representatives to power plants in the late evening to check up on maintenance problems. The surprise inspections were to make sure merchant plants had real reasons for being off-line and were not simply manipulating an already taxed marketplace.

“We’re mystified why they carried it out in the middle of the night like a drug raid,” said Richard Wheatley, a spokesman for Reliant Energy, whose Oxnard, Calif., merchant plant was inspected that night around 10 p.m.

But, all the inspections and suspicions did little to halt the downward spiral. On Wednesday, Jan. 17, 2001, California nosedived into a power eclipse when officials called for mandatory blackouts. The next day, Thursday, Southern California Edison defaulted on a $215 million payment to the California Power Exchange, and, while they were able to limp along and eventually pay the money, such financial explosions were only foreshadowing the next major blow: the bankruptcy of Pacific Gas & Electric (PG&E).

In May 2001, PG&E had just one statement for California Governor Gray Davis: We’re busted. Becoming only the third U.S. electric utility to declare bankruptcy, the company’s filing came less than 24 hours after Gov. Davis addresses the state about the energy crisis, labeling it “the most difficult issue facing California.” In that speech, he stated that he had a plan to financially restore the utilities, if they would agree to his conditions: to provide power on a 10-year, regulated plan, to agree to sell their transmission lines, and to drop the lawsuits to increase consumer rates.

But that plan never saw the light of day at PG&E.

“We chose to file for Chapter 11 reorga-nization affirmatively because we expect the court will provide the venue needed to reach a solution, which thus far the state and the state’s regulators have been unable to achieve,” stated Robert Glynn, Jr., chairman of PG&E, in a 2001 statement.

And, while California remained on the front burner of the deregulation hot plate that summer, a number of states with less media attention were quietly reconsidering electric restructuring, including Oklahoma, Nevada, and New Mexico.

In April of 2000, Sierra Pacific Resources, the parent company of Nevada Power and Sierra Power, filed suit in federal court claiming that the 1999 Nevada restructuring law was “unconstitutional.” While Sierra Pacific dropped the suit in March 2001, the topic never seemed to die, and Governor Kenny Guinn issued the “Nevada Energy Protection Plan,” which included an overall indefinite halt to electric utility deregulation.

“I have an obligation as Nevada’s governor to be proactive on this all-important issue, to come up with a plan that will protect the average ratepayer and help stabilize the energy situation in Nevada,” Guinn stated when his protection plan went public.

And, back in California, the CPUC itself had suspended retail choice for California power consumers by the end of September 2001.

“The negative portrait of California, as related to deregulation, is accurate in a couple of areas,” stated Valocchi. “To give one as an example: The market design was flawed going in. So, taking that into account, this was a failed experiment. It just didn’t work. But, we need to be careful about using that problem as a way to kill all sorts of deregulation.

“So that’s where I quibble a little bit: When everyone starts to use California as an example of why we shouldn’t deregulate the industry.”

Valocchi sees any short-term deregulation in the West tainted by California; he stated that restructuring in the area was “painted into a corner,” using Nevada’s delay of restructuring as a perfect example.

“Eventually, the West, and specifically California, will try deregulation again,” Valocchi added. “But, it certainly won’t be in the short-term.”

The Southwest

California’s woes of 2000 made a number of states take a second look at their own plans to restructure.

In May 2001, SB 266 was enacted in New Mexico, which delayed the opening of the retail electricity market to competition. Customer choice for residential customers, which had already been delayed until 2002, was further delayed until 2007. Nonresidential customers were shifted to 2008.

Sen. Michael Sanchez, who was the author of the original restructuring act for the state in 1999, also sponsored SB266. Tony Schaefer, chairman of the New Mexico Public Regulation Commission, stated that this new legislation gave the state an opportunity to evaluate national, regional and state markets to determine whether deregulation is appropriate for New Mexico.

“California showed us what can go wrong if we don’t have a good understanding of these markets and how they are evolving around the country,” he stated.

And a state away, while speaking to a room filled with representatives and lawyers, Kevin Easley, Oklahoma state senator and co-author of the SB220 (the Oklahoma bill to introduce electric restructuring), said he didn’t see much current action in the restructuring arena, even though there had been plans to restructure the state by 2002.

Easley added that the deregulation hot potato would, most likely, not find a new proponent willing to take the scalding.

“There aren’t a lot of senators who even want to look at this at all,” he said. You become a target.”

And Easley should know. His 180-page bill, rejected the last day of legislative session in 2000, took years to put together. While SB220 was, in fact, passed by the Oklahoma Senate on a 30-18 margin, it failed in the Oklahoma House by 56-41, with a mere 15 votes deciding its fate. And Easley took the brunt of the blame, although differing sources cited specific problems with the taxation issue or the sheer length.

In the end, Easley reflected that, when he started the process in the mid-1990s, “you couldn’t get five people in a room to discuss [deregulation],” but that late 2000 conference had him look out over a packed room.

“If nothing else has happened, at least we’ve expanded our involvement,” he added.

One of the few states to expand involvement in deregulation on a more “hands-on” level was Texas. It had a different plan for electric restructuring, and it was plowing forward, although not necessarily at a breakneck speed.

When Governor Perry signed the proclamation for “Texas Electric Choice Month” in late March, 2001, he was joined by the chairman of the Public Utility Commission of Texas (PUC), as well as a state senator, a state representative and the principal authors of the state’s restructuring legislation (Senate Bill 373)—with none of them scrambling to distance themselves from deregulation. Instead, they expressed a positive outlook for the state’s retail electric choice future.

Reflecting what most would call a pre-California mindset, PUC commissioner Brett Perlman stated simply, “Competition for electric service should result in prices lower than they would have been under regulation.”

The state has, however, had a few glitches: a delay in the pilot program and problems with customer information management. But, in April 2002, the state was progressing along the road of deregulation with no major accidents.

Tom Noel, CEO of the Electric Reliability Council of Texas (ERCOT), focused on the details of what makes Texas a workable market in a 2002 interview with EL&P. He stated that the main issue setting Texas apart from states like California, and even Pennsylvania—which was stalled at the time of the interview—was the lack of a power pool.

“The bulk of our power is traded bilaterally among consenting adults, if you will,” he said. “The market participants themselves do all that. They’re doing their own hedges, their own short, long and medium contracts to ensure that their supply is adequate. Generally speaking, that’s worked quite well for us.”

At the time, Noel labeled the ERCOT market a “work in progress.”

“Our retail market is open and functioning quite well, but it’s certainly not perfect. I tend to be a little conservative in terms of categorizing our success, but market participants tell me that, already, this is a real success story,” he stated.

Noel admitted that there were a few problems with the process of assigning IDs (to the power user) and working out the system of moving that ID smoothly through the transition from service provider to ERCOT before the retailer called in to discuss the change. If the service provider had lagged a bit in offering the ID, it was possible that the system would reject the transaction.

But even this small error bothered Noel. “As long as people out there are inconvenienced by not getting power when they thought they should get power, I can’t qualify this [market] as a success,” he stated. “Most objective observers would tell you it’s gone quite well, but it’s not perfect by a long shot.”

Indeed, in the July 2002 Retail Energy Deregulation Index (RED Index) published by the Center for Advancement of Energy Markets (CAEM), Texas had finally pulled ahead of Pennsylvania, making it first in its class, with a whopping 69 percent out of 100.

“I make a joke when I give speeches that Texas is first in its class, but that it’s a pretty stupid class,” stated Ken Malloy, CEO of CAEM in a July 2002 interview with EL&P when discussing the Texas’ score.

“Texas is the best among a bunch of mediocre implementations,” Malloy added. “And it’s a good starting point, but, clearly, they’ve got to push—as I believe they are—to refine and move up the scale.”

Consultants XENERGY also declared Texas the hands-down deregulation leader in the summer of 2002, releasing a statement that the Lonestar State was “king of retail electric competition” in the U.S.

Valocchi agrees with XENERGY. “Texas is the real story here,” he stated.

“Succinctly said, all eyes continue to look at Texas. From most people’s point of view, their market model is fairly sound. Of course, there are issues, but Texas has appeared to fix some of California’s errors.

“But, we can’t declare this either a failure or a success today. We’re very, very early in the game. The protections put in place for the consumers—which I’m not against, let me point out—does slow the marketplace, by their very nature.

“Right now, I give them average performance. No huge failures. No huge successes,” he concluded. “I would not call them a shining example, but I would call them a move in the right direction.”

Valocchi does believe that there are issues within the Texas model: how to separate the retail entity from the distribution entity, how to stop confusing the customer about contact points, and a few other small flaws which may hurt the success—in the public’s mind, at least.

“But, Texas is performing on par,” he added. “And that’s saying a lot for where we are with deregulation right now.”

The Pacific Northwest

Valocchi labeled the Pacific Northwest as “swell.”

“They have the advantage of fairly low-cost power because of the hydros and the connected Canadian power,” he pointed out. “There’s not a huge impetus for them to deregulate. So, I think each of the states in that region is taking this slowly.”

Valocchi does believe, however, that the region has made some interesting moves as far as pushing smaller details like unbundling costs and extensive automated meter reading. He also sees some “innovative rate-making treatment,” which, in his opinion, at least keeps the debate moving without “sitting on their laurels.”

However, according to a late December 2002 article in The Oregonian titled “Response to deregulation weak,” as the state nears its first year of restructuring plans, the movement has been more than slow, it’s been nearly non-existent.

So far, only a single business has decided to move from its traditional utility to an alternative supplier, a statistic that Bob Valdez, a spokesman for the Oregon Public Utility Commission, labeled “very cautious” when interviewed for the article.

Very cautious, indeed. Oregon passed its deregulation law in 1999, with its debut in March 2002. At that time, a lot of risks that had arisen around the specter of deregulation had businesses a bit scared to take a chance with a new supplier. Not a single business converted by the original spring deadline.

A second winter deadline was set for December, with the change going into effect on New Year’s Day. That’s when the single, unnamed business decided to switch. According to the article, neither the business’ previous utility, Portland General Electric, nor the Public Utilities Commission, would name the business or alternative supplier.

One local businesswoman gave a direct reason for not considering a change. In the article, she stated that she needed “to know that the service is bulletproof.”

The South

Electric restructuring, on the retail side, is barely breathing in the South. Traditionally low prices have all but eliminated the region’s appetite for the classic carrot of deregulation—more competition creating lower-cost power.

To get a more complete overview of the area from someone a little closer to the action—or lack thereof—EL&P spoke with Dwight Evans, executive vice president and president of external affairs for Southern Company in late January 2003.

Evans does believe that wholesale competition is working quite well in the South. He even labeled it as “robust.” As far as retail, however, he admitted that there is little progress at all in that area.

“Looking out over the next five years, we see wholesale continuing to work in the South—and continuing to work well,” he said. “We don’t see a move toward retail competition, however, because of the problems that have occurred in other parts of the country.

“In fact, we don’t see the South moving toward retail at all in the near future,” he added.

Evans believes that, with all the problems retail electric competition has already seen across the U.S., a “great deal of work” would have to take place in the area of deregulation outside of the South before the region would seriously look at opening up markets.

“The South may move forward if we see progress elsewhere. So, obviously this is something we watch all the time,” he stated.

Evans pointed out, however, that Southern Company—and most of the region— does not have definite plans to participate in deregulation.

“And I think that’s pretty much on target with what the legislators and regulators have told us,” added Laura Varn, spokeswoman for Southern Company. “They really don’t even want to discuss deregulation in the South for at least the next five years. That seems to be the common atmosphere, especially here in Georgia.”

Evans agreed, illustrating his point by commenting that, while he was president of Mississippi Power, Enron and others came down and testified that the California model was “the model” and legislators should pass that immediately. Evans and his colleagues, however, cautioned that a “one size” doesn’t always fit all.

“We had about three years where the proponents of deregulation were telling the politicians to move forward, that it would work,” he said. “And every single time, it failed.

“So, until there is a model in the U.S. that is working well, I think you’re going to see politicians stay away from it—especially in those parts of the country, like the South, where rates are low and reliability and customer satisfaction is high.

“Pennsylvania or Texas may work in the long term, but they haven’t been proven yet,” he added. “And we hear that there are some problems from players in those markets whom we regularly talk to.”

Evans stated that the South continues to “gather intelligence” on deregulation, but that the data is a bit too heavy on the negative side at this point in the process for the region to jump into deregulation with both feet.

“Here at Southern Company, we’re not being proactive. We’re not being reactive. We’re being interactive about deregulation,” Evans said. Returning to the models of Texas and Pennsylvania, Evans admitted that if those programs turn out results where rates are lower and reliability is higher, Southern Company—and the entire South, most likely—would seriously consider electric restructuring.

“But, I think California proved that deregulation does not guarantee low rates,” Varn added.

“We’re just very concerned about moving forward on anything here in the South that does not keep low rates and high reliability,” Evans reiterated.

Valocchi categorized the South’s reaction to deregulation as more than stagnant.

“The saying is that the South will build another nuclear plant before deregulation comes to the region. The states have taken this to a grinding halt, and they have done just enough inquiry and investigation to keep everyone off their backs.

“They have fought the standard market design pretty adamantly as well,” he added. “And, I think, the Southeast pushing so hard against the standard market design certainly had something to do with its delay. Pat Wood has heard them. Definitely.”

“For us, deregulation and competition is not a religious thing. We’re neither for it or against it, what we’re looking for is a model that works for the long term,” Evans said.

Evans stated that, for Southern Company, the real competition comes on the generation side, a place where the savings is obvious. So, when the region took the first step into wholesale competition, it seemed like a smart—though cautious—beginning.

Regional transmission organizations and a robust transmission system to support that wholesale competition is the next big step, according to Evans. But, that retail is much farther down the line.

“When those political promises, from entities like Enron, that deregulation was going to work and work well fell through, the South pulled back and took another look at their plan. I think people pushing competition over-promised,” Evans stated. “And the result was a political stagnation of retail choice here in the South.”

The California fallout, the Enron fallout and the natural gas market problems all contributed to slowing down electric restructuring in the region, according to Evans. But, in addition, there are positive points that have contributed to this lack of forward momentum as well, including low rates, which keeps the general public in a region from asking for change.

“They have some of the lowest rates in the country,” Valocchi stated. “The argument in this region is that they do not wish to export those low rates at the price of hurting their consumers. And then there are places like Florida, where there really are issues about supply.”

“In a nutshell, wholesale deregulation is very much alive in the South, but retail is on hold,” Evans concluded. “And it will continue to be on hold until there is a definitive model to follow.”

The Northeast

Up until the fall of 2001, restructuring advocates often touted Pennsylvania as the single shining jewel in the deregulation crown. It seemed that the Pennsylvania market, unlike California, could do no wrong. It was better, stronger, faster. However, toward the end of 2001, the Keystone State was faced with rising wholesale prices, retreating competitors and a series of customers returned to their default service provider.

All the turmoil led Kathleen Magruder, vice president of government affairs for NewPower Company, to characterize the 2001 Pennsylvania power market as “backsliding.”

In an October 2001 interview, Magruder stated, “The position in Pennsylvania is not nearly as good today as it was a year ago, much less two years ago. Quite honestly, a lot of the rules and regulations that were put in place three years ago—before anyone had actually deregulated—turned our to not work in the real world.”

By July 2001, the Pennsylvania Office of Consumer Advocate released electric shopping statistics that stated 591,596 customers were participating in the open electricity market at that time, a bit above the numbers for the year before. However, those numbers were also well below the 786,846 customers listed for the April 2001 issue just a few months before. The Office also noted that about half of the remaining customers were former PECO customers buying power at below market cost as part of the state’s discount power program.

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However, the twice-a-year RED Index still ranked Pennsylvania as the deregulation leader in 2001. Texas, though, was closing in fast. And the index noted that Pennsylvania was slipping.

“While California’s crisis has brought a lot of positive attention to Pennsylvania’s model, many customers in the Keystone State are returning to their original utility suppliers,” stated Ken Malloy, CEO of CAEM, in July 2001.

“It underscores how important it is to put the right fundamentals in place if consumers and suppliers are to benefit over the long haul,” he added.

“We saw Pennsylvania jump out to a really good start a couple of years ago,” Magruder continued in her 2001 interview. “What has happened along the way, though, is that ICAP [installed capacity charges] has caused dislocation and distortion in market prices. Shopping credits have not kept up to the true cost of serving the customer, and, as a consequence, you see many marketers leaving the market or going out of business.”

As for current issues, Valocchi sees deregulation in the Northeast—from Pennsylvania to Maine—as generally positive.

He added, “I wouldn’t say overwhelmingly so because this is a region that traditionally had pretty high costs of power. And, over the past few years, we have seen power prices start to inch their way down, slowly.”

Valocchi stated that it was easier for this region to show progress—vs. other areas of the country—because of those initially higher rates.

“Both Pennsylvania and New York have done credible jobs with keeping reliability where it needs to be and keeping prices competitive,” Valocchi added.

And, while there is a lot of activity in the region, little is said about the Northeast. Valocchi sees this as a good sign.

“What you have to remember is that retail competition is generally not an issue, unless it fails,” he said. “In the Northeast, there have been a few issues with brownouts and the like, but none of that has been directly tied to deregulation.

“So, there’s not a lot to write about in the Northeast.”

The Midwest

Next door, Ohio was in the same deregulation limbo at the end of 2001 and the beginning of 2002. At that time, Ohio’s market had been open for approximately a year, and while there had been progress, that push forward had suddenly reached a “plateau,” as the spokeswoman for FirstEnergy labeled the market in January 2002. Other power companies seemed to agree with that assessment.

“Restructuring in Ohio cannot be called a success at this point, but I wouldn’t throw it away either,” added Becky Merola, director of government affairs for NewPower, a certified alternative supplier in Ohio, in a January 2002 interview.

Aggregation has been a major part of Ohio’s deregulation process since June 1998 when the Public Utilities Commission of Ohio approved Monongahela Power’s tariff for conjunctive electric service—the first tariff approved in Ohio that allowed groups of consumers to aggregate and negotiate the price they pay for power.

Ohio had worked the aggregation process into its restructuring law, and, by the turn of 2002, had seen some amount of progress in that area, especially in the northern half of the state. It did, however, have a few dissenters. According to the structure of the law, an Ohio city that passed an aggregation referendum could lump residents into the program unless the residents followed the exit process, leading some to label municipal aggregation a close kin to “slamming.”

And there were other less-then-positive takes on the Ohio market. Ellen Raines, spokeswoman for FirstEnergy, told EL&P that the Ohio market was too early to call in January of 2002, but she also pointed out that a number of the markets early switches resulted from FirstEnergy’s agreement to provide a limited amount of generation, 1,120 MW, at below market prices to suppliers—as a way to “jump start the market.”

“Things have quieted down since the early months,” she added, noting that no one was really offering the customer a stellar deal to entice switching.

“Those [government aggregation] groups aren’t offering a huge savings. One of them is offering 1 percent off your price to compare, or one percent off one-third of your bill,” she told EL&P in 2002. “So, it’s not a lot of money.”

Ohio isn’t the only Midwestern state to dip a toe into deregulation. Illinois has made advances as well.

When EL&P first took an in-depth look at the state in March 2001, they were approximately midway through the process of restructuring, with a modicum of success. Although, even at that time, some Illinois marketers feared that the calm could merely be the eye of the hurricane. In their minds, a number of questions were still unanswered about the Illinois market.

At the time, controversy centered around the practices of Illinois Power (IP), who locked in a number of their larger commercial and industrial customers with discretionary contracts in 2000, a move that some saw as a snub of alternative providers. Representatives of alternative suppliers, who wished to remain nameless, were still smarting from IP’s actions as late as March 2001. When contacted for the article, one labeled IP’s practices “vigorous resistance” of deregulation, and another stated that the utility’s action “largely squelched the market, and they did it rather blatantly.”

On the other hand, the Illinois Commerce Commission (ICC), who oversees regulated operations and services of electric, gas, telephone, water and sewer utilities, believed that a lack of competition in some areas of the state at that time were created simply by a lack

of available suppliers, along with shortages, problems with transmission systems and interconnection standards, and a lack of restructuring legislation in surrounding states.

In their report “Assessment of Competition in the Illinois Electric Industry Three Months Following the Initiation of Restructuring,” the ICC also traced ComEd’s restructuring progress to the fact that the utility has fairly high rates compared to the rest of the state, a factor a number of alternative suppliers brought up as well when asked about the concentration in the ComEd area. (The Energy Information Administration reported that customers in the ComEd area were realizing anywhere from a five to 15 percent savings from competitors at the time.)

In a March 2001 interview, Philip O’Connor, the president of AES’ NewEnergy Midwest, an official alternative supplier in Illinois, saw the current state of deregulation in the region as “on the right trajectory, but unsettled.”

He added, “The key problem is that there is not a sufficiently strong commitment by some players to really making competition work. There is always the possibility just over the horizon that one interest or another might prevail.

“The ICC has made many good decisions, and several not so good ones,” he commented. “But there is not yet a clear and reliable philosophy of competition articulated by the ICC.”

Overall, Valocchi sees the Midwest still divided between the states that are making forays into deregulation—like Ohio and Illinois—and states that really aren’t doing much of anything (Michigan, Iowa, Minnesota, for example). Valocchi admits that the region did need some help, from a “cost of power” point of view.

“What they’ve done is take a fairly balanced approach to this,” he commented. “They had issues they needed to fix, and they are working on these.”

Valocchi doesn’t see Illinois as a “resounding success,” as the switching rates are below 10 percent, but he doesn’t see those numbers as a harbinger of doom.

“You don’t expect to have huge switching rates. The real issue is whether you can lower the cost of power, and they have in Illinois,” he added.

“I don’t think using switching rates as a proxy of success or failure in a restructured market is the right metric,” he concluded.

The future

Valocchi believes that perhaps the industry should re-examine the concept that deregulation must be completed and must be expanded across all regions to be labeled an unqualified success.

“Do all the residential consumers need deregulation? I’d submit to you: No,” he stated. “I think we need to step back a little and potentially stop preaching that we need choice for everyone in the country because that’s just not true.

“There are certain segments of the population that probably should be protected and serviced by some sort of franchised provider. It’s possible that retail choice is not going to be better for them in the long run,” he added.

Valocchi doesn’t think the U.S. will ever complete electric restructuring, nor does he believe that we should. He sees the U.S. as constantly working and re-working the system. He sees deregulation moving forward, but, because no one is sure what the “right endgame” is, continual restructuring may be the answer.

“My pat answer to the question about whether deregulation is dead would be no,” Valocchi stated. “However, deregulation in the form of how people thought of it five years ago? Yes, that’s dead. And, if I think about deregulation as choice for everyone who gets electricity, yes, I think that’s absolutely dead.

“What I don’t think is dead is restructuring the market. That will continue.”

F. Michael Valocchi, partner in the energy and utilities strategy area of IBM Business Consulting Services, can be reached at

Dwight Evans, executive vice president and president of external affairs for Southern Company, can be contacted via Laura Varn or Tiffany Gilstrap at 404-506-5333.

Note: More information on U.S. deregulation can be found at in the online extras section.


  • The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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