NCPA - National Center for Policy Analysis

Power Deregulation Works

March 19, 2001

One of the more irresponsible claims made by the opponents of deregulation is that California got into its power mess due to deregulation, say many economists. Electricity deregulation has been enormously successful in other areas of the country.

Experts point to the case of PJM Interconnect -- the company that runs the power grid and electricity market for the Middle Atlantic states.

  • Following deregulation, competition increased and power prices fell for the customers of this largest power grid in North America -- with Pennsylvania consumers alone saving $3 billion on their electricity bills since deregulation three years ago.
  • Unlike California, regulators allowed utilities to protect themselves from price hikes by allowing them to hold on to their power plants or enter into long-term contracts with generating companies.
  • More than 200 companies participate on PJM's spot market -- compared to only 60 regular participants on California's now defunct energy exchange -- thereby keeping prices down to an average of $28 per megawatt-hour versus $110 in California.
  • PJM requires its suppliers to have enough capacity to cover all current demand plus a 19 percent reserve -- versus California, where the margin has at times fallen below 1.5 percent.

Also, PJM's region has faced fewer restrictions than California has in building new power plants. Environmental concerns have gridlocked the plant permitting-process in California.

Source: Jeremy Kahn, "Where Deregulation Isn't a Disaster," Fortune, March 19, 2001.


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