The Perils Of Predicting Electric Rates

  Late last spring a consultant told the Special Task Force on Electricity Restructuring that if Kentucky deregulates electric utilities, a lot of different things might happen to the state’s electric rates.

  Actually, he used a lot more facts and figures than that simple summary indicates. But the presentation by Christopher Seiple of Resource Data International shows that even with a lot of careful study, there’s still truth to Yogi Berra’s observation that, “It’s hard to make predictions, especially about the future.”

  The research firm’s presentation was just part of the information being gathered by the 20-member task force, which was created by the legislature last year and held its first meeting last September. Since then it has been meeting monthly, and is on schedule to make its final report in November. That report will be used by the Kentucky Legislature to determine whether to take any action on restructuring the electric utility industry, as many other states have done. 

  Seiple’s presentation to the task force indicated that if Kentucky deregulated electric rates, which are currently the second lowest in the nation, there wouldn’t be much change in rates in the next 10 years.

  “Some utilities (in Kentucky) would be likely to face higher rates, and some would be likely to face lower rates,” Seiple said.

  He added, however, a lot of things could change that forecast. For example, if the economy continues its healthy growth, the excess electric capacity that his predictions rely on “could be gone as early as next year.” The predictions could also be thrown off by new environmental regulations, possibly increasing rates as much as 10 percent.

  Seiple described one possible future under which deregulation could significantly decrease rates. He said that if a restructured electric utility industry caused a lot of people to seek different kinds of rates and pricing, for example, allowing their power to be interrupted during times of high demand, electric rates could be substantially lower several years after deregulation took effect.

  Seiple conceded that his forecasts were based on theory, that we have no experience to base the predictions on. Further, he said, his forecasts “assume that no company in Kentucky will make a mistake in the future.”

  That kind of information is causing the restructuring task force to take a cautious approach, says Jack Conway, who represents the governor’s office as one of the three co-chairs of the task force.
The other two co-chairs are Senator Larry Saunders and Representative Larry Clark.

  Conway said in an interview in June that because Kentucky has the lowest electric rates east of the Rocky Mountains, “There’s a lot to be concerned about. There is so much to lose.”

  He said that because there is so much uncertainty regarding the effects restructuring could have on rates and service, “I don’t anticipate major restructuring legislation to pass in the 2000 session of the
legislature."