Talk of Deregulation Has Begun in Indiana

As electricity costs continue to ride in Indiana, the state has begun to discuss the potential of deregulation. Gov. Mike Pence is crafting an energy policy that is due this summer.

Policymakers say the idea is only a topic of discussion right now, but the fact that the state is even considering allowing consumers to choose their energy supplier signals just how concerned Indiana leaders are about losing their edge when attracting businesses.

"The willingness to have even the level of conversation we've had so far really speaks to the understanding of how serious of an issue it is that our industrial electricity rates are going up," Dan Schmidt, Gov. Mike Pence's energy policy director, told the Indianapolis Business Journal.

States like Illinois approved deregulation in the 1990s, but blackouts in California in 2000 and 2001 caused by energy traders gaming the system slowed momentum.

Indiana and Michigan are now considering opening their electricity markets in an effort to remain competitive.

Phil O'Connor, a former chairman of the Illinois Commerce Commission, noted that Indiana's industrial electric rates have risen even while demand is flat.

Industrial customers in Indiana paid an average 6.59 cents per kilowatt hour through the first 11 months of 2013. Their counterparts in deregulated Illinois paid 5.75 cents per kilowatt hour, a nearly 15 percent difference.

Indiana had the sixth-lowest industrial electric rate in 2003, but that has dropped to 27th lowest.

"There's no way to regain that price advantage with traditional regulation," O'Connor said.
Businesses like Tate & Lyle, which has two corn-refining plants in Lafayette, say electricity prices are a concern as they weigh expansion plans.

Tate & Lyle's annual electric bill in Lafayette is in the tens of millions. Chris Olsen, vice president of community and government affairs, said the company is considering a big expansion but would face $2 million more in electricity costs in Indiana compared with other locations.

"As we look at projects, in virtually every economic-development factor except electricity prices, Indiana is outstanding," Olsen said.

Kerwin Olson of the Citizens Action Coalition said deregulation might help increase the use of wind and solar power. But he questioned whether it would benefit residents and small businesses as much as it would industrial users, whose business would be highly sought by energy suppliers.

Ed Simcox, president of the Indiana Energy Association, argued that Indiana's rates are still reasonable and that there's no reason to rush to the open market because electricity prices are rising nationwide.

"For the time being, there's a lot of pressure on states that are mostly coal-fired, but that will abate," he said. "We think that, over time, Indiana will look good in the comparative analysis with other states."
Even if Pence includes deregulation in his energy plan, no changes can occur without action by the General Assembly.