PG&E Crippled By Rising Fees

The roots of energy and gas deregulation can be traced back to the Ronald Reagan-era trend in the early 1980s when several industries, including the savings and loan and airlines, were opened for competition.

The competitive landscape of the U.S. electric utility market, where $300 billion per year of retail electricity is consumed each year, is governed by the individual states. Competition is the result of the 1992 federal Energy Policy Act. That law required all utilities to share their transmission lines. Now a utility in a high-rate state can buy much cheaper electricity from a state with lower rates.

That, at least, was the theory in 1997 when California became the first state to open its entire retail market for competition.

In practice, Pacific Gas & Electric in California was driven into bankruptcy last month when out-of-state providers raised those fees through the roof at the same time that PG & E was prevented from passing the increased cost on to customers.

In 1998, Pennsylvania became the second state to open its market. New York, New Jersey, Maryland and Illinois have all opened their retail electric utilities for competition, and other states may soon follow suit.

While the United States is slowly seeing its states open their utility markets, the model they are following is much different than the way England and Australia chose to go. There, a whole country is one big market, and each customer must choose a provider from among all the retailers. In the United States, the existing provider is left as the default service provider if the user chooses not to choose.

Federal control over the natural gas market ended in 1978, and the first residential natural gas choice programs were launched in 1997 and have since spread nationwide.