So far, the decade-long effort to create a workable, competitive
market for electricity in the United States has been mostly a flop.
In about 16 states, generating a third of the nation's power
supply, retail customers have a choice of power providers, though
not a meaningful one in many of these states.
Relatively few households have switched to new providers. And
though regulators have stacked the decks in favor of new
competitors, the dollar savings of switchers have been tiny.
Further, the electricity crisis in California, the bankruptcy of
Pacific Gas & Electric Co., and the failure of Enron - once the
world's largest energy trader - have stalled moves by other states
toward a competitive system.
So where does the nation go now? Back to the old franchise-
monopoly system? Or do the states move forward toward competitive
power markets that actually work?
A controversial new study by Cambridge Energy Research Associates
in Cambridge, Mass., warns: "If the power sector continues to muddle
along its current path of inconsistent and uncoordinated
deregulation, then a slip back to regulation is almost inevitable."
In fact, any competitive system will be highly regulated by
"The rules will be much more complex," says Sharon Reishus, one
of the researchers for the CERA report.
In the old system, which still prevails in most states, a public-
utility commission regulates power companies, most of which not only
generate much of their own power, but also handle its distribution
They also have a role in looking after regional transmission
organizations that swap power between utilities in a given region to
meet shifting demand.
In states that have switched to competitive systems, the
utilities had to sell off their power-generating plants to separate
companies. So state regulators must deal with more entities,
including additional generating companies and a host of independent
The CERA report makes multiple suggestions for standardizing
state regulations in coordination with the Federal Energy Regulatory
Commission (FERC), which regulates interstate transmission of power.
"Power markets are complex, unlikely to evolve on their own
accord, and need structure to work properly," says the report.
One basic problem is providing incentives to power generators to
maintain surplus capacity that may be used only on a few hot days in
the year. Under the old system, a surplus power capacity of 15 to 18
percent was part of the franchise-monopoly system. …