Posted by: marilynshowalter | June 25, 2007

Happy Talk Does Not Equal Happy Prices

The ISO RTO Council (IRC) has established a website, complete with “Myths and Facts” and “10 Reasons ISOs and RTOs are Good for North America.” This happy talk has so much spin that it will take some time to slow it down, deconstruct it, and fully respond. Readers may want to respond to individual points, but I will begin with a single set of “facts” IRC uses to respond to its own Myth #1. In an apparent attempt to point out that deregulated states aren’t the only states to have suffered recent electricity price increases, the IRC points out that in the period 2000-05, there were increases of “43% in Colorado, 46.7% in Oklahoma, 53% in Mississippi, and 67.3% in Louisiana.” No cites are provided, so I’m not sure if the figures are for all customers or a subset.

First, reciting percent-increases alone leaves the reader in the dark on absolute prices. A 50% increase from a base of 12 cents/kwh is 6 cents, for a total of 18 cents/kwh. A 50% increase from a base of 6 cents/kwh is 3 cents, for a total of 9 cents./kwh. Put another way, an increase of 2 cents/kwh in a low-cost state will be a much bigger percent-increase than the same increase of 2 cents/kwh in a high-cost state. A more meaningful measure is to compare absolute increases.

Second, picking out four states’ prices over a five-year period reveals very little about overall trends. On PPI’s website, I have posted graphs for all states, using data since 1991 (the earliest available in current form), and using all states in a given category (regulated, deregulated) when making comparisons.

But okay, taking IRC’s point as presented, compared to what should these four states’ price-increases be measured? Here are the price trends for all customers in those four states, compared to the same prices in the deregulated states, 2000-2007 (12-month rolling average ending in Feb 2007). As you can see, the four selected states (none of which is in an ISO/RTO) started with relatively low rates, compared to the deregulated states (all of which are in an ISO/ RTO), and the gap in prices between these two sets of states has roughly doubled. If anything, the growing gap is more consistent with, rather than a refutation of, IRC’s “Myth #1: Competitive wholesale markets have led to higher retail prices.”

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Responses

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