Rethinking the Federal Role in a Competitive Electric Market

Article excerpt

When I was in college, it was still illegal to hook up my own telephone. But I did it; everybody I knew did it. And we didn't get caught. We did not worry about it too much, but in those days, the telephone industry was so tightly vertically controlled that you simply could not have your own piece of the system. Today you can start your own telephone company. In fact, I own shares in a telephone company that did not exist three or four years ago, and it is one of the fastest growing firms in the telecommunications business. I do not know if it even owns any phones. What it does have are satellite systems, communications systems, and call centers. It is a marketing company. It buys communication services on the open market and remarkets the services.

The electric industry is in the midst of the same kind of revolutionary change. For one hundred years, the electric companies thought their job was to count how many people they had the license to serve, add up all their loads, look ahead a few years, and say how many more people would there be, what would their loads be, and go out and plan a supply adequate to meet all of that load. That described the utility industry until a relatively few years ago. Some companies still are in that island mentality, planning resources only to meet their loads. These companies are dinosaurs.

Last week my company, Portland General Electric, bought a supply of power from the Palos Verde Nuclear Plant in Arizona. We then sold it to the Los Angeles Department of Water and Power (LADWP). LADWP sold it to Louis Dreyfus, a trading company that got in the electric business a couple of years ago. Louis Dreyfus in turn sold it to a Canadian utility. The Canadian utility resold that power to Washington Water Power Company. And then, we bought the same power back from Washington Water Power Company - for less than we originally paid.

So talk about restructuring the Bonneville Power Administration (BPA) is not just about changing federal agencies and how they deal with natural resources, what they do in planning, and their social roles. The context is one of totally restructuring the entire U.S. electric industry. I believe that in five years most of our customers, our large customers, our medium-sized customers and, quite possibly, our residential customers will be able to buy their distribution and delivery services separate from their power services. They will be able to check and see what Louis Dreyfus is offering this week on the Internet, switch retailers, and maybe get a hundred-dollar bonus for doing that. That will turn upside-down the question of planning and operating as a business affected with a social interest.

Restructuring BPA ought to start from the beginning. Let us start with the needs of today. BPA was created to solve some problems that we do not have any more - like rural electrification - and at a time when the dominant concern was that private utilities would gain control of these national sources of power and grab all the benefits for themselves. We can now declare victory over rural electrification and victory over the evil industrialists, for the best hydroelectric sites have now been developed by the government.

As a philosophical matter, we can rely on competition to provide what society needs while constraining monopoly power. In the case of my own company, we expect to have a monopoly for awhile, at least concerning the distribution of electricity on a retail basis, and we understand that we will be regulated, because if you have a monopoly, you can charge whatever you want, and that is not in the public interest. Now, the greater monopoly is in the transmission of electricity, where BPA has the monopoly. How you make a government competitor work in a competitive marketplace is not entirely clear.

There is a lot of talk about the idea that BPA has lost its competitive advantage. Its electric power is no longer the good deal that it used to be. …