Wholesale Competition Contributed to Trend of Lower Power Prices, According 
to New EPSA Study


PR Newswire
07/23/01, 1:00p
(Copyright , 2001, PR Newswire)

WASHINGTON, July 23 /PRNewswire/ -- Calls for a return to cost-plus rate 
regulation in the wake of the California power crisis are misplaced, 
according to an independent study released today that found that competitive 
markets contributed to a 36 percent decline in retail electricity prices 
among surveyed utilities.

"That decrease is in sharp contrast to the increases that consumers 
experienced in the days of solely cost-plus rate regulation," said Electric 
Power Supply Association President Lynne H. Church, who released the findings 
during a media luncheon in conjunction with the group's summer membership 
meeting. "This analysis is evidence that we should continue to move forward 
toward more competition in order to apply downward pressure on prices."

The study: "Assessing the 'Good Old Days' of Cost-Plus Regulation," analyzed 
sales data for 60 of the nation's investor-owned utilities during 1985-1999, 
when traditional cost-plus rate regulation began evolving toward more 
competition. Complete sales figures for 2000 were not yet available when the 
study was completed. The study was commissioned by EPSA and conducted by 
Craig Roach, Ph.D, principal of Boston Pacific Co.

"In the wake of the California power crisis, some people have expressed a 
longing for a return to the 'good' old days of cost-plus regulation, but 
those days were far from good," Roach said. "People seem to forget that, in 
the days of cost-plus regulation between 1970 and 1985, inflation-adjusted 
electricity prices actually increased 25 percent for residential customers 
and increased 86 percent for industrial/commercial customers."

"So much for the good old days," Church said. "The price increases under 
cost-plus regulation were precisely what drove the start of electricity 
competition in the early and mid-1980s."

During the 1985-1999 period, according to the analysis, inflation-adjusted 
electricity prices decreased an average 30 percent for residential customers 
and 36 percent for industrial/commercial customers.

"We should not allow the problems in California to cast a false shadow on 
competition," Church said. "The evidence presented in this study makes it 
clear that it would be counterproductive and unwise to go back to the old 
ways."

"It is important to understand that what happened in California resulted, in 
part, from market rules that prohibited basic risk management," Roach said. 
"Specifically, utilities were required to take on the risk of selling at a 
fixed price to customers, but not allowed to manage that risk by arranging 
contracts with fixed-price suppliers or use other risk management tools. 
Managing risk appropriately benefits consumers, and risk management is more 
efficient and effective in a truly competitive regime."

"This study bolsters our belief that the Federal Energy Regulatory Commission 
should continue to move expeditiously toward more efficient wholesale 
markets, states should continue to move quickly toward opening their retail 
power markets, and Congress should quickly adopt comprehensive legislation to 
help them along," Church said. 

Note: A copy of the complete study is available at 
www.bostonpacific.com/powerprices . 

EPSA is the national trade association representing independent power 
producers and power marketers active in U.S. and global power markets. As 
suppliers of reliable, clean, competitively priced electricity, EPSA members 
seek to bring the benefits of competition to all electricity customers. 

Contact: Mark Stultz, 202-628-8200 Audrey Duff, 202-354-8205 

/CONTACT: Mark Stultz of Electric Power Supply Association, +1-202-628-8200; 
or Audrey Duff, +1-202-354-8205, for Electric Power Supply Association/ 

/Web site: http://www.epsa.org 

http://www.bostonpacific.com/powerprices /