New Choices Mean New Rules for the Electricity Market

June 2000

By Lisa Shapiro

With enactment of SB 472, the legislation authorizing securitization for Public Service of New Hampshire (PSNH), the State of New Hampshire has taken a major step toward the introduction of a competitive market for electricity. Implementing this law is critical, but before choice and the anticipated savings that go along with an open market become available, New Hampshire must complete several more steps.

Choice was originally supposed to come to New Hampshire by July 1, 1998, but PSNH successfully delayed the implementation of deregulation by suing the state. With the settlement agreement, changes made by the Public Utilities Commission [the PUC], and passage of the new law, choice should be available to consumers on October 1, 2000. While the actual date remains to be worked out, competition will likely come to New Hampshire between January and April of 2001.

The start of electricity competition depends on a number of factors. Some consumer and taxpayer groups have filed appeals with the PUC regarding details of the State's settlement agreement with PSNH. If these appeals are dealt with quickly by regulators and the court, or dropped, choice could come sooner. If not, litigation could extend the date for competition even further.

Although the actual date when competition will begin remains to be seen, New Hampshire electricity consumers will begin seeing some benefits on October 1, 2000. By that date, PSNH has agreed to provide one-third of a 15 percent discount agreed to in the settlement, or approximately 5% less in electric rates. This partial discount will stay in effect for six months or until competition comes, whichever is sooner. The remaining reduction will be implemented on the actual date competition begins.

It is important to note that, if we find ourselves in litigation on this issue in April of 2001, rates could go back up to previous levels, and the current regulated environment will continue. The price of electricity could still go down, but it is uncertain when and by how much.

The other issue that remains is whether a competitive market will bring lower prices to New Hampshire. New gas plants are estimated to be able to produce electricity at a cost of approximately 3.4 cents per kilowatt-hour (kWh). After considering the market costs of getting power to customers, we could see prices in the range of 4 to 4 1/2 cents per kWh.

But will we? Given current conditions, additional savings are not going to happen, and many customers may experience higher prices unless market prices come down. Summer prices for electricity are over eight cents per kWh. This increased cost is attributed mainly to problems in creating a reliable, competitive New England electricity grid, and shortages in supply.

The grid and its associated market is the mechanism through which organizations sell and buy electricity, and the way power is distributed to various areas in New England. If the electricity grid's market prices can be controlled by the actions of one supplier, as can happen now, we do not have a properly functioning market.

It is now possible for one electricity supplier to withhold power from the grid and drive up the cost of electricity. This means the open market will not function properly and prices will continue to be well above what a competitive market should deliver.

Ensuring that the electric market performs appropriately is important to the economic well-being of the state. Under SB 472 as passed, residential consumers will be protected from a malfunctioning market for more than two years, but commercial and industrial purchasers will be forced to bid for electric service nine months after competition is implemented. If large electricity users are forced to purchase power in a market with inflated prices, market competition will not bring the benefits expected.

New Hampshire is betting on properly functioning markets. But rather than focusing on controlling prices, regulators must develop rules that allow the market to work and competition to deliver the benefits intended. New power plants coming on line, and the regional organizations instituting sensible rules, will ensure that competition brings lower prices and more value.

In the end, there is only one measure of success: new options and better prices for all New Hampshire consumers.

Return to top of page

Return to HOT TOPIC: ELECTRICITY DEREGULATION for more information on this issue.
Return to Energy/Utilities Articles
Return to Firm Publications