The price of electricity has been in the news recently:

• an editorial (The Addison Eagle, 12/30/99)
• an article (The Rutland Herald, 12/30/99)
• an op-ed piece (The Rutland Herald, 1/6/00)
• a letter to the editor (The Rutland Herald, 1/14/00)

All claim that if something doesn't change, Vermont will have the highest electric rates in the region soon. No one cited a source for that claim.

VCE contacted Steve Costello, spokesperson for Central Vermont Public Service (CVPS) to ask for the source of that statement. He responded:

"La Capra Associates, a Boston-based company, did a rate analysis in Nov. 1998 that examined where Vermont rates were headed going forward, as well as where rates were headed in surrounding states. It shows Vermont will be in the middle of the regional pack for the brunt of the next decade. La Capra is working on an update, but has said it believes Vermont's rates will continue to be competitive with New England going forward, despite...claims to the contrary."

Below is a chart showing electricity prices in the region:

In his op-ed piece, Senator James Jeffords notes that on New Year's Day, Connecticut residents saw a 10% rate cut, that Mainers can expect a similar cut by Easter, and that in New Hampshire, rates might fall 18% if a proposed solution is successful.

Those states have given in to utility industry pressure to pass along all the stranded costs to consumers in what amounts to a bail-out of the nuclear industry. Massachusetts serves as a good example. They initially legislated a 10% rate reduction for one year beginning March 1998. Now, that year is up and rates are rising back to their previous, pre-restructuring rates or even higher.

Recent news stories reported glowingly about the rise in Massachusetts' "Standard Offer" rate (the basic rate that must be met by existing utilities which was set so low that it stifled competition) from 3.1 to 4.6 per kilowatt, saying this would lead to competition. For electricity consumers in Massachusetts, it means their power bills are going up, wiping out all gains brought about by "deregulation". It will take about 10 years of high rates before the stranded costs will be paid off in those "restructured" states.

The reason Vermont has not gone to a restructured electricity environment is because the leadership of the Vermont House of Representatives has been unwilling to pass all the stranded costs along to ratepayers.

The Myth of Competition

Vermonters are hearing the sales pitch that we need to restructure and deregulate in order to allow competition, and that competition will lower rates for consumers. Vermont's Secretary of the Agency of Natural Resources even seems to be arguing in a recent letter that we need to build polluting electric generating facilities in the state of Vermont in order for consumers to see rate cuts. Anyone familiar with the facts knows that the location of power plants is irrelevant to the cost of electricity in Vermont's current marketplace. New power plants will not result in lower rates for Vermonters.

Restructuring requires that the electric utilities renegotiate or sell off their high-priced contracts with Hydro-Québec and Vermont Yankee, and sell off their generating assets such as Vermont Yankee. In theory, companies like CVPS will become solely "poles and wires" companies, although in practice utility companies are setting up subsidiaries that invest in generation assets, such as CVPS' subsidiary, Catamount Energy.

CVPS and GMP are teetering on the brink of bankruptcy because of imprudent investments they made when they entered into long-term, high cost contracts with Hydro-Québec and Vermont Yankee, and their inability to renegotiate or divest themselves of those contracts in a manner that keeps them in business and does not harm ratepayers. These above-market investments are the so-called "stranded costs".

Meanwhile, mergers and acquisitions in the utility (gas and electricity) sector are happening at an unprecedented rate. A year ago, industry speculation was that no utility company with fewer than 2 million customers would survive. Now predictions are that utility companies will have to have a minimum of 5 million customers to be competitive. CVPS and GMP will not be attractive take-over targets until they have sold off their generating assets and long-term contracts, and passed stranded costs to consumers.

In a market controlled by a half dozen enormous utilities "competition" is not reality. This is the definition of oligopoly, which has the same effect as monopoly. They use the right words to sell states on the concept of "competition" by "deregulation" and "restructuring", but the outcomes so far have amounted to a bail-out of the utilities at the expense of consumers, and an increase in regional air pollution. A study released last week by the Energy Department [Wall Street Journal, 1/13/00] says that "utility deregulation has considerably eroded the reliability of North America's electricity-supply system during peak usage periods because utilities haven't made the system upgrades needed to prevent regional power grids from breaking down." Utility profits are up.

If the state were to offer leadership on this issue, the legislature could empower Vermonters by:

• assuring equal access to buy and sell into the power grid
• allowing for aggregation, cooperation and municipal power purchases
• providing incentives for the development and use of renewable and sustainable energy technologies that are favored by consumers who have a choice
• taking into account the health and environmental costs associated with fossil fuel technologies and the government subsidies they enjoy.