Jonathan Fahey

Jonathan Fahey, Contributor

3/25/2010 @ 11:40AM

Electric Deregulation Finally Takes Off

The giant brain that manages the electricity used by 27 buildings owned by Vornado Realty Trust around Washington, D.C. just got smarter. With a new service developed by Constellation Energy ‘s NewEnergy subsidiary, Vornado can modulate the power used in those buildings as one in response to electricity prices. Vornado uses less power that way and pays less for it, says Sukanya Paciorek of Vornado.

This is how it was supposed to work when the federal government and 22 states began to deregulate the electricity market starting in the late 1990s. The hope was that power sellers would lower prices and devise creative sales contracts as they competed with each other for customers. It didn’t happen. Instead, prices rose, customers stayed with their old utilities, new generation wasn’t added fast enough to keep up with demand, and utilities began to abandon the retail electricity sales business.

Now, finally, two big factors are getting electricity customers to shop around for power. After years of steady price increases, electricity prices have been bouncing around and generally falling, and technology once only available to big industrial customers is trickling down to smaller users. In the mid-Atlantic electricity service area prices fell 45% in 2009, and in the New York service area the price was the lowest in the ten-year history of the market, 49% below 2008 levels.

Competitive retail providers, like NewEnergy or Direct Energy, offer rate plans that allow customers to lock in current rates for all or almost any portion of their usage. Customers can also opt to pay different rates based on when they use power or to get paid for using less power during certain peak periods. Now, with the use of so-called smart meters, small business and even some residences can communicate with providers and buy power more like big customers can.

When regulations were lifted in a big chunk of eastern Pennsylvania this year, 26% of customers representing 40% of the electricity load switched providers in just ten weeks. One reason is price; another is that all its customers have smart meters.

Some buyers complain that deregulation still isn’t working because it hasn’t inspired power companies to build more plants. With today’s low prices that won’t change soon.

Those low prices cut both ways for firms like Constellation because its power plants earn less. In the meantime, its retail arm is using lower prices to lure more customers–all the better for Constellation when prices rise again.

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