Vermonters Win; Deregulated New England Loses

Predicting future energy costs is a fraught exercise, or as Yogi Berra might have said, “it’s difficult to make predictions, especially about the future.”  So hopefully readers will forgive us if we highlight a recent PFT prediction that came true. Nearly a year ago, this blog suggested that energy wonks should keep an eye on state-by-state electricity prices in New England over the succeeding winter months. Given fast rising wholesale energy prices in the New England electricity market, PFT hypothesized that residents of Vermont would fare better than any other state, owing to Vermont’s decision not to deregulate its utilities, as happened in the other five states in the region.

The data are now available, and sure enough, the prediction came true. Vermonters won; deregulated New England lost. The chart below shows just how right (Vermont and PFT) was: .

Because Vermont maintains traditional regulation of its utilities, state regulators help ensure that utilities build a generation resource mix that benefits consumers. This helps stabilize rates, making them more predictable and affordable over the long-term. It also builds a cushion to soften the blow of wholesale price blowouts. As we said last year:

“because of Vermont’s public policy decisions, the state’s electricity rates – while still high compared to the national average – are likely to not rise as much as its regional peers. By building a diverse portfolio of assets, including long-term contracts for renewables that the markets will not support, Vermonters have built-in certain customer rate protections.”

In retrospect, perhaps we shouldn’t gloat over our prognostication skills. The trend in New England power rates was predictable, just as it has been predictable everywhere else across the country for the past 25 years. Electricity deregulation harms average customers. Volatile wholesale electricity market pricing quickly translates into volatile retail electricity prices paid by customers in deregulated states. It’s been this way since the advent of restructured utilities more than two decades ago, and it won’t change anytime soon. It’s not a random mistake. It’s how utility deregulation is designed.