Electricity Reform in Colorado: A Resource Guide for Citizens & Policymakers

Executive Summary

·Deregulation of telecommunications, natural gas, and transportation saved American consumers billions of dollars, created new choices among sellers and spurred numerous new services in the bargain. Ending the artificial monopoly that electric utilities hold should deliver similar benefits to Colorado consumers.  

·Low rates do not preclude Colorado’s benefiting from deregulation. Colorado enjoys some of the lowest electricity prices in the U.S.A. Yet, well-considered deregulation can reduce rates even further and deliver new services to customers.

·Competition does not require the “mandatory forced open access” that has frozen the Colorado legislature. Instead, reformers should eliminate Colorado’s laws that prohibit competing against incumbent utilities. Abolishing these artificially created monopolies will allow competition to develop more naturally in a number of ways.  

·Instead of imposing forced open access over existing wires––and the regulatory superstructure necessary to manage it––market-based deregulation should protect the rights of utilities to control their power lines. But since the utilities will not be protected from competition, new power producers, real estate developers and others could offer delivery services to customers. The many competitive threats that ending monopoly franchises will unleash will often induce the incumbent utility to offer open access voluntarily in order to avoid attracting new competitors. Thus consumers get lower prices and competition, and even open access, without regulatory mandates.  

·Electricity deregulation can even promote renewable energies such as solar, wind, geothermal and biomass power sources. Consumers interested in conservation may purchase power from any source they prefer under open competition; this choice is an option that today’s captive customers lack.

·Insiders say the relatively low electric rates available from Public Service Co. of Colorado, the state’s municipals, and rural electric cooperatives have taken the steam out of deregulation issues for most lawmakers. Rates are at about a comfortable 6 cents/kWh and holding, so most lawmakers are asking what all the fuss is about.

 “Colo. Restructuring Dies,” Electricity Daily, March 13, 1998

 I. Overview: The Current Dilemma

Consumers in Colorado pay prices for electricity that are among the lowest in the country. Therefore, indeed they are to be forgiven for wondering “what all the fuss is about” over electricity deregulation. Yet there is plenty to fuss about. Even though Colorado faces low electric costs now, it must take charge of its fate and ensure that the state experiences even further gains by assuming the role of a leader in energy deregulation. Colorado can be a state that does things, rather than a state that things are done to.

The $212 billion electricity industry is the largest industrial monopoly left in the United States. Unlike when shopping for groceries, hardware or clothing, consumers dissatisfied with their electric service are stuck with the local power company.

Thanks to recent deregulation of telecommunications, natural gas and airlines and trucking––industries which had enjoyed governmental shielding from competition––customers are recognizing that they owe no allegiance to artificial monopoly. Most states, including Colorado, have introduced legislation or regulation to bring retail competition to their markets.

To bring that competition about, federal and state reformers alike propose what is referred to as “forced open access,” or “retail wheeling” as the model of reform. Under this approach, industrial, commercial and residential electricity customers would be allowed to select an alternative power company—much as they may choose among long-distance telephone companies today. The local utility would be required, with compensation, to deliver the competitor’s electricity to the homes and businesses of customers. Thus under forced open access, transmission and distribution of power remain regulated, monopoly functions of the local utility. Only pricing and entry for generation is deregulated under existing models.

Regrettably and paradoxically, the forced open access model requires enhanced regulation of the power grid, because someone will have to oversee all the unsolicited dumping of power into the grid. Plus, forced open access needlessly imposes “stranded” losses on existing utilities, who suddenly may be faced with a dearth of customers. Coupled with Colorado’s low costs, recognition of such stumbling blocks have contributed to the cooling of passion for reform in Colorado.

A better approach for Colorado as well as the nation as a whole is a forward-looking, comprehensive, more practical industry liberation aimed at loosening the regulatory wires binding the entire industry, not merely the generation sector. This approach protects the long-term economic health of the electricity industry. Removing the artificial walls between sellers and buyers at all levels of the power marketplace is essential if customers and the industry are to fully benefit.