Experiences elsewhere show need for caution in utility regulatation

August 20, 2003|JIM JACOBUS

Several news items caught my attention recently.

In California, Gov. Gray Davis may face a recall vote in October.

Among the reasons for voters' dissatisfaction is the state's 2000-01 energy crisis.

While who should bear the blame is debatable, the facts of what happened are clear - demand exceeded supply and prices in the newly deregulated markets spiraled out of control.

Regulators and lawmakers regained control with emergency measures, and things are fairly back to normal in California. But hard lessons were learned by everybody - policy makers, regulators, utilities, consumers, and even other states that were pondering changes in the how they regulate their utilities.

Meanwhile, on the Atlantic coast, another story is unfolding that hasn't received nearly as much media attention, but might in the near future.


In New Jersey, price caps on retail electricity are being eliminated as the state institutes the final phases of its 1999 regulation reforms.

Already, electric companies are lined up to request substantial rate increases to offset several years of losing money as power prices soared and price caps prevented recovery of that cost.

Clearly, the lesson of recent industry regulation reforms is that we should tread carefully.

And that is an important lesson as our federal lawmakers work on new energy legislation and as federal regulators consider some fundamental changes in how electricity is transmitted.

In Kentucky, one of the reasons we have the lowest electricity rates in the nation is because we have abundant energy resources. As a result, we enjoy a competitive advantage when it comes to recruiting businesses and industries that are big users of electricity.

Federal lawmakers and regulators should give careful consideration to how their decisions will impact Kentucky power customers.

In California, in New Jersey and in some other states that have revamped utility regulations, a common theme that has emerged is that intentions and expectations did not match the reality of what happened.

Let's take a lesson from those who have been there, and proceed carefully.

Jim Jacobus is president and CEO of Danville-based Inter-County Energy, a Touchstone Energy Cooperative serving 23,182 customers in 12 counties.

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