Power Deregulation: Positive Surge, or Short Circuit?

By David R. Francis writer of The Christian Science Monitor | The Christian Science Monitor, March 25, 2002 | Go to article overview

Power Deregulation: Positive Surge, or Short Circuit?


David R. Francis writer of The Christian Science Monitor, The Christian Science Monitor


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 necessity.

"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 to consumers.

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 distributors.

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. …

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