Pennsylvania and New York Lead in Study Ranking Progress by States on Electric Restructuring

A new index of the progress states are making toward electric restructuring shows Pennsylvania and New York in a near tie for the national lead.

The Retail Energy Deregulation Index 2000 (RED Index), issued by the Center for the Advancement of Energy Markets (CAEM), shows that:

•  Pennsylvania and New York, with scores of 59 and 58 out of 100, respectively, lead the nation in customer choice.

•  California, the pioneer in electric restructuring, surprisingly ranks only 11th, with a score of 34.

•  Texas, a relative newcomer to restructuring, leads the South with a score of 45 and a ranking of seventh in the nation.

•  The national average score is 18, but that rises to 20.4 when weighted by sales volume and 23.3 when weighted by revenue.

"The genie is out of the bottle," said CAEM President Ken Malloy. "The consumer choice model will eventually be implemented in all states. But there is so much detail involved in 51 jurisdictions moving at different speeds on different issues. We need a user-friendly scorecard to measure each state’s progress. The RED Index is the only effort to synthesize the mass of detail into a single number."

Malloy noted that indexes are frequently used to simplify complex phenomena. "We say the Dow passed 11,000. The Consumer Price Index (CPI) for 1998 was 163.1, up 1.6 percent. Hurricane Mitch was a Category 5 on the Saffir-Simpson Hurricane Intensity Scale. Each of these indices allows us to make a quick judgment about the significance of a complicated event or to simplify a comparison between two complex events."

He continued, "Benchmarking is the rage in corporate America. We believe the RED Index will help the states benchmark their efforts against other states. To better inform state regulators and to facilitate its use, we have sent a copy of RED Index 2000 to all state commissioners, state consumer advocates and state energy directors with permission to freely distribute the study to their staff."

The transition from the monopoly model of retail electric utility regulation to the customer choice or competitive model began in April 1994 when the California Public Utilities Commission issued its proposal to restructure radically its electric markets. In the ensuing period, nearly every state has begun to make dramatic changes to electric regulation to give customers the ability to choose an alternative energy supplier.

"Whatever our hopes may have been that restructuring of wholesale gas and electric markets might make retail restructuring easier, it has become increasingly clear that retail restructuring is a completely different and more complex undertaking," Malloy said. "We believe the RED Index will assist legislators, commissioners, companies and analysts in understanding the pace, quality and direction of change in policies effecting the transition from the monopoly model to the competitive model."

The RED Index 2000 is a 90-page report that measures the progress states have made in moving from the monopoly model of public utility regulation to the competitive model. A RED Index score of 0 represents the monopoly model and a score of 100 represents complete and effective implementation of the competitive model. The index focuses on retail competition and currently only covers electric restructuring, and will be updated twice a year.

CAEM developed the RED Index by identifying 18 key attributes that are the foundation for an an effective transition to competition. These attributes were weighted and scores were assigned to the different options that states have regarding that attribute. CAEM then conducted research to determine the option chosen by each state on each of the 18 attributes. The index scores were then calculated based on the methodology and research.

The results were circulated by CAEM to each state commission chairman for comment. Then the draft study was revised and circulated to each state commissioner for additional comment. CAEM made appropriate revisions to arrive at the final report.

CAEM provides the RED Index at no fee to governmental agencies and nonprofit, public interest organizations. CAEM funds the study by charging a modest fee to private sector companies. Copies can be ordered from redindex@caem.org, through the center website at www.caem.org, or by calling 703-250-1580.

The Center for the Advancement of Energy Markets (CAEM) is an independent, nonprofit think tank whose mission is to promote an effective transition from the monopoly model of regulation to the competitive or customer choice model. Ken Malloy has been a public official with the Federal Energy Regulatory Commission, the Illinois Commerce Commission, and the U.S. Department of Energy.