Electric Industry: Let the Competition Begin Worried They Have Much to Lose, Northeast Utilities Oppose Deregulation

Article excerpt

Politics, the enemy of so many productive policy initiatives, is threatening another: electricity deregulation.

Retail market electricity deregulation could be one of the most significant deregulation efforts since the Motor Carrier Act of 1980 deregulated the trucking industry. But some in the Northeast are concerned that if the electricity industry were deregulated, consumers would turn to the low-cost coal-fired power plants of Ohio, Michigan, etc., for their power-generating needs.

They say all the resulting nitrous oxide, sulfur dioxide, and carbon dioxide emissions would hop on the first shuttle to the Northeast. But perhaps the politicians and electric industry commentators from the Northeast really aren't concerned with the environmental impact of deregulation. Of the 106 counties in the United States that do not meet current standards for ground-level ozone, 36 are located in the Northeast. Instead of taking responsibility for their lackluster performance, these politicians and industry spokesmen are pointing at the West - passing the buck, in other words. Not prepared to compete State regulatory policies in the Northeast have left many electric companies ill-prepared to compete in a deregulated market. Further, many of the Northeast's large utilities have high average generating costs. This, obviously, isn't an advantageous starting point from which to enter a competitive market. But it is an incentive to oppose deregulation. Enter the stranded investments issue. Loosely described, stranded investments are that portion of a utility's investments that become obsolete when a customer buys power from another utility. For some Northeastern companies, stranded investment losses are significant. Therefore, some in the electric industry claim a "regulatory compact" with the the government that entitles them to recover this loss. Others argue that stranded investments are a result of normal business risks and therefore the electric companies should not be entitled to recovery. Such is the quandary of federal regulation: If the government steps in and allows for full recovery, the consumer will bear the burden. If no stranded investment recovery is allowed, a very large and powerful industry would bear the burden. …