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The Fallacy of High Prices

Howard J. Axelrod, Collin Cain, and David W. DeRamus
Public Utilities Fortnightly
November 1, 2006

Collin Cain, MSc, and David DeRamus, PhD, economists at Bates White, LLC, have published an article that contends consumers are better off, in both the short and long terms, under restructured electricity markets. The article, The Fallacy of High Prices," written with Howard J. Axelrod, an independent expert, appears in the November 2006 issue of Public Utilities Fortnightly.

Sharp increases in retail electric rates have piqued both consumers and politicians, who, the authors contend, have mistakenly focused on restructuring in the industry as the cause of rising prices. The authors provide evidence to counter both this belief and politicians\' calls for a return to traditional rate regulation. They discuss how wholesale competition in restructured markets, especially in the eastern United States, has benefited consumers.

Restructuring, the authors conclude, has lowered wholesale and retail prices (after the effect of increased fuel prices is taken into consideration) and shifted significant risks away from customers to generators, who are better able to address those risks. The authors suggest that a less politicized regulatory environment could provide even more benefits to consumers, especially in light of uncertainties arising from Middle East conflicts and evolving environmental policies.