perfidy

In Cleveland, they're learning that an unregulated utilities market only works if the utilities sector behaves like a... um... market.

Ohio's lawmakers and energy policymakers once thought free-market competition would drive down electric rates as independent generating companies and power brokers competed against utilities for residential and commercial customers.

So the General Assembly in 1999 rewrote state law to eliminate the regulated generation rates under which electric companies had long operated as virtual monopolies.

Told to work out the details, state regulators created a so-called "market development period" that began in 2001 and is supposed to climax in January 2006 with the birth of a robust, competitive market.

But with three years down and two to go, only a handful of outside companies have entered Ohio to sell power.

And the promised deep discounts for residential and small commercial users who signed up with alternative suppliers have not materialized for most customers. In fact, commercial customers of FirstEnergy still pay some of the highest rates in the country.

How this happened is as complicated and thorny as deregulation itself.

Experts say the failure of California's wildly ambitious deregulation plan and the collapse of Enron Corp. helped thwart the growth of a national wholesale market as a source of electricity for power marketers.

The insolvency of nearly a half-dozen other energy trading companies further stunted the wholesale market's growth. That, in turn, made the creation of local retail competitive markets all but impossible.

Moreover, the lack of coherent federal policies spelling out what authority regional transmission organizations should exercise over utilities has kept the movement of bulk power across the nation's electrical grid expensive and unreliable.

Still another part of the problem, say some critics, can be traced to the design of the deregulation law itself and to the rules that state regulators wrote.

The law allowed the monopoly utilities - FirstEnergy Corp., American Electric Power Co., Dayton Power & Light Co. and Cinergy Corp. - to continue collecting for old construction costs, including nuclear power plants, until Dec. 31, 2005. The utilities successfully argued that they had undertaken the construction projects as regulated monopolies and the costs otherwise would be "stranded."

The Public Utilities Commission of Ohio agreed to allow FirstEnergy to collect a total of $8.7 billion to compensate the company for those costs. Always part of the electric bill, the charge now appears as a separate item called a "transition charge" and represents about 30 percent of the bottom line.

And consumers who switch to another power company still must pay the transition charge.

Critics think that's wrong.

Me too. Market solutions to public problems never work if the effort is half-assed. This is a cautionary tale for advocates of market solutions to everything under the sun (me included). Sure, the market could make the world a beautiful place, but only if it works perfectly. Kind of like they used to say about Communism.