A blackout casts spotlight on power deregulation

One reason is that the price of natural gas has gone through the roof. Proponents of deregulation assumed competition would be promoted by a multiplication of combined-cycle natural gas-generation plants that can be built for far, far less than, say, coal-fired or nuclear-powered plants.

In the past five years, about 400 natural-gas plants came online, providing nearly all the nation's new capacity. But the high price and shortage of natural gas makes it unlikely new gas-fired plants can provide the boost in supply to make energy markets really competitive and less manipulable.

Today, natural-gas plants are far less competitive.

Another element is the confusion, uncertainty, and complexity of the existing, mostly regulated, partly competitive power system. Both the states and Washington are involved in regulation. The House of Representatives held hearings on the big blackout last week.

Also, the power industry is reluctant to invest in transmission lines if it doesn't know what the rules of the game will be.

Enver Masud, who managed two major Department of Energy studies of the power grid and its reliability in the early 1980s, sees a basic flaw in the current proposals for a national competitive wholesale market for electric power.

Under the traditional regulatory system, a regional independent system operator tries to minimize power costs for its member utilities. If a utility needs extra power to meet a surge in demand, it draws first on its own or another utility's plant with a surplus of the cheapest power, then from the plant with the second cheapest power, and so on.

Computerized programs using detailed cost information and past demand patterns make this traditional system economically competitive, Mr. Masud says.

Under a deregulated (or restructured) system, competitive suppliers are interested in selling power, period, whether it is the cheapest to make or not. They want to make profits. Sharing cost information may hinder that.

"They are fighting each other," says Masud. A "tried-and-true system that favored cost minimization was replaced with an untested system that favored profit maximization.

"It also fractured responsibility for the overall reliability of the system," he says. And it produced numerous new executive jobs with fat salaries.

Free-market enthusiasts haven't yet figured out how to assure a 10 to 20 percent surplus in power capacity in a competitive system. What generating company will build a $100 million plant if it is going to be used only for a few weeks in summer power peaks?

Last month, a report by the Electric Power Research Institute (EPRI), a Palo Alto, Calif., research group financed by more than 1,000 power firms, urged spending an extra $100 billion over the next decade to upgrade the nation's power grids to make them more suitable for a computerized economy.

Power surges and failures today cost the United States about $100 billion a year, says Mark Gabriel, EPRI's vice president. The system, he says, needs "a fundamental rethink."

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