A blackout casts spotlight on power deregulation

When conservatives trumpeted deregulation of the electricity industry in the United States a decade ago, they argued that competition and customer choice would save consumers piles of money.

About $80 billion a year, said a study by Citizens for a Sound Economy.

It hasn't happened. And many factors, including higher fuel prices and waning legislative enthusiasm for deregulation, are melting away any projected savings faster than ice cream during a summer power failure.

"We have seen exactly the opposite" of savings, says Wenonah Hauter, director of energy and environment programs at Public Citizen, a Washington, D.C., advocacy group.

"The jury is still out," adds James Owen, spokesman for the Edison Electric Institute, a bit more generously. His institution, representing shareholder-owned power companies, cautioned in 1996, at the time of the Citizens for a Sound Economy report, against "over-promising" the benefits of deregulation.

Indeed, last month's record blackout in the Northeast and Canada will end up costing the industry billions of dollars between lost revenues and new spending to improve reliability of the nation's power-transmission system.

And while that blackout has forced a new look at the transmission grid, the more important discussion revolves around a couple of questions:

Has deregulation reduced the reliability of the system? And if it has, should the nation stop trying to make the electric-power industry competitive and move instead to a "natural" monopoly, where state regulators set reliability requirements and prices that give power companies a reasonable return on their investments?

The beginnings of a return to tighter regulation may already be under way.

Encouraged by the surge in popularity of free-market theories and facilitated by the political power of Republicans and New Democrats, about a third of states have tried to deregulate (actually, restructure) their power industries.

As an incentive, the state legislatures involved insisted that retail rates for households be cut for a few years.

But those incentive prices will soon expire. And with fuel costs rising, consumers can expect higher electricity costs, not lower. At the wholesale level, power prices are already up in California and New England, two parts of the nation that are trying deregulation, notes Ms. Hauter of Public Citizen.

California is widely seen as a special case involving poorly designed regulatory rules and $8.9 billion in gouging by Enron and other power providers who have taken advantage of a state power shortage.

But Mark Cooper, research director for the Consumer Federation of America, suspects that nationwide, electricity deregulation is "an idea whose time has come and gone."

It's not likely that other states will move toward restructuring in the short term. New Jersey, and perhaps other states, may retreat toward a regulated-monopoly power system.

Page: 1 | 2