July - August 2001

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On Electric Power Deregulation (June-July 2001)…

Theories abound about how you might be able to do it (deregulate) correctly, and "experimental" evidence — accompanied by lots of hindsight about what went wrong this time — suggests that it's very hard to get it right. I side with the member of the California power commission who said that reliable electric power is too important to everybody, homeowners and business owners alike, to leave us all at the mercy of the so-called "free market."

— Chuck Antoniak
IEEE Senior Member
Upland, Calif.

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Deregulating a pseudo-monopoly in an attempt to create a competitive environment is a neat idea on the surface. However, the underlying problems are many:

1. Electric power generation industry management is and will continue to cooperate in ways that are anti-competitive. The case in point here is California, where it has been reported that the competitors conspired to (and did, on paper) corner the market on each other's energy supply and artificially drive the price up well beyond the normal market price. In our current and recent historical legal environment, where The Sherman Antitrust Act is rarely enforced or used to drive proper corporate behavior, the result of such action is a drawn out cover-up that benefits both the perpetrator and the investigating agency.

2. The recently announced formula for energy price caps says that the highest generating cost bidder will be used to set the price cap for all bidders. This is an open invitation for each generating facility to install a small gold-fueled peaking plant (yes, I am being a little facetious here, but not entirely, as you will soon see).

3. The real need is to apply the Sherman Antitrust Act to prevent the big power companies and their cohorts from sweeping distributed power alternatives under the rug. The cost of a solar system in this country is many times greater (artificially, by the way) than the cost of a similar system in the Philippines. Much of this cost is due to the regulatory barriers, put forth at the behest of power companies, that require installation of special high-cost equipment, if both external power and internally generated power can be put on the same power lines at a site supplied by the power companies at any time.

4. The need to provide power inexpensively has, by the nature of the deregulation to date, been supplanted by the need for the newly deregulated industry to show a profit. They now taste the profits and are hungry for more. The problem is the lack of obstacles in place to prevent them from devouring the profits of residential and industrial customers, whom they courted very effectively when they were still regulated. For many of these customers, their entire business model or home installation was based on the ready and reliable availability of inexpensive electric power. As a result of this, I am of the opinion that the deregulation will cause one of two results:

A. Companies like mine (Caterpillar) will supply many more power generation units and remove immensely more load from the electric power grids. This also applies to the likelihood that many more distributed power systems that are fully independent of the utility grid will pop up. The scary thing is that this is exactly what the government wants, based on studies of the electric power grid capacity over the past several decades.

B. The strength of this country in numerous electricity-intensive industries will be set back at least temporarily, giving way for other countries (read China, primarily) to receive even more of our exported dollars as we become less and less self sufficient. The long-term effect will be, at best, similar to what Great Britain went through in the 1980s under Margaret Thatcher. We will see a significant belt tightening and a major loss in our standard of living. The funny thing is this will also affect the standard of living of the people in the electric power generation industry and their children.

I do hope these dire predictions are wrong and that I have misinterpreted what is going on in our country. However, the actions being taken by the various players in this little drama seem well cast, and the ending is pretty well predictable unless someone steps in to change its path.

— Roger Watkins
IEEE Member
Peoria, Ill.

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Any time a significant cost is involved in providing basic utilities, I have subscribed to the premise that the service be regulated for two reasons. First, the cost involved with setting up the service needs to be mitigated for the consumer over time. Second, after the service has been established, the costs of maintaining the service are relatively low, as is the basic cost of providing the service. This regulation allows shortsighted consumers who would like a lower monthly cost to be kept in check with shortsighted companies that don't manage their resources. Given this, regulation appears to provide a stabile force to allow companies to recoup their investments in distribution, but at the expense of a cap on profitability in the long run.

Regulation also guarantees the company that manages resources well a constant flow of income and profit. For the consumer, it means monthly utility bills will remain fairly stable in both the short- and long-terms.

Consider telephone deregulation, aviation deregulation, natural gas deregulation, and now power deregulation. All have caused the lowest bills to go even lower at the expense of the higher bills going ever higher. I propose that if an average of the monthly utility bills is taken, the utilities for which deregulation has occurred will have the highest average monthly payment. A corollary to this is that deregulation has actually increased the average monthly bill over what inflation or fuel costs would have done.

In short, deregulation appears to be good for stockholders when the companies can gouge, but bad for consumers when the companies can gouge.

— Erik R. Evert
IEEE Member
Warner Robins, Ga.

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