The Indiana Law Blog linked to an interesting article in the New York Times on the push to “re-regulate” the electric industry in some states where “deregulation” was attempted.
I remember the deregulation efforts fairly well because that was one of the areas to which I was assigned when I worked for the Legislative Services Agency. The electricity deregulation bills would usually cross my desk at some point or another. I was staff counsel for the Regulatory Flexibility Committee where the proposals would usually get banished for study over the summer. In Indiana, I believe the push for deregulation of the electric industry failed in large part due to sentiments I remember being expressed by Rep. Dave Crooks. He didn’t want to be the guy responsible for raising electricity prices for the folks back home. Indiana was, after all, already one of the lowest energy markets in the country — even if the lobbyist from Enron, along with others, was telling the General Assembly that deregulation of the energy market was the way to get even cheaper energy. I also recall Rep. Jim Bottorff playing a pretty active roll in bottling the deregulation proposals up in the House Commerce Committee. I may be wrong, but I seem to recall the folks from the Indiana Manufacturers Association were pretty keen on the idea of deregulation as well.
Apparently the states that didn’t have enough guys like Rep. Crooks and Rep. Bottorff are having a little buyer’s remorse.
More than a decade after the drive began to convert electricity from a regulated industry into a competitive one, many states are rolling back their initiatives or returning money to individuals and businesses.
. . .
Of the 25 states, and the District of Columbia, that had adopted competition, only one, California, is even talking about expanding market pricing.The main reason behind the effort to return to a more regulated market is price. Recent Energy Department data shows that the cost of power in states that embraced competition has risen faster than in states that had retained traditional rate regulation.
One of the main problems seems to be that there wasn’t any real competition in the markets. The Federal Energy Regulatory Commission has a laughable approach to determining “market prices”:
The Federal Energy Regulatory Commission, however, has declared that once it determines that a market for electricity is in place, the prices that result are inherently market prices.
Marily Showalter, a former Washington State energy regulator has calculated from government data that the total real cost to consumers in states with “competition” was $292 billion in higher electricity prices since 2000.
There were good reasons for regulating energy companies in the first place. Apparently those reasons haven’t entirely disappeared over the past 70 years.
Competition in generating electricity isn’t difficult. The problem is that the transmission of electricity is subject to substantial capacity constraints since very little has been invested in transmission capacity for decades (and 765 kV lines are fantastic NIMBY catalysts). During the 1980’s certain businesses recognized this fact and bought out the most important transmission links (or bottlenecks to put a more sinister tone to it) in the country and then pushed for deregulation. Indiana, being a slow growth area with lots of coal fired power plants along the Ohio River probably wouldn’t have fared nearly so badly if full deregulation had come here as high growth areas far from power plants (read California) did.
Long term some form of deregulation may be a major energy saver if it is done in a way that promotes a more distributed generation system. Transmission losses are huge, and the constraints on capacity leave us with a system in the U.S. and Canada which grows very unstable in warm weather. But the old model of regulated electrical power generation encourages huge, centralized, capital intensive investment because rates are based on return on investment. It takes time to revive local hydro projects, or perhaps fuel cell facilities at the neighborhood level, which would be more labor intensive. Electrical power transmission losses would be far less and the system more reliable on the whole if the electrical powerr industry operated on the scale that Edison used in the late 19th century as against what what was built in the 20th. At least outages couldn’t cascade across half the continent.
Paul points out the real sticking point – transmission infrastructure, which has to run a pretty substantial line to each consumer (and which is coming from a limited number of fairly large plants).
I have some hope that radically improved energy storage technology (read: super industrial batteries, or the equivalent) may help lower the cost of generation (by cutting the need for peak power generation facilities) and at the same time enable wider distribution of electrical supplies.
But, no way to predict when or if such a breakthrough will be achieved – right now our only large-scale electrical energy storage is in the potential energy of the water behind hydroelectric dams.
I remember a Wired Article from about 10 years ago that described the potential for hydrogen fuel cells to revolutionize the automobile industry as well as the electric utility market. Apparently, Wired’s standard breathless reporting was a bit premature in declaring the end of the regulated electric utility:
There was also this tantalizing prediction:
Maybe it’ll come to pass as predicted one of these days. But, I’m afraid it’ll be like the flying cars and personal jet-packs I was promised when I was a little kid.
Combined heat and power systems for households are starting to become available. One example from Honda can be seen at:
http://www.treehugger.com/files/2007/04/honda_and_clima.php
These systems don’t make it economically in Indiana, but might in Minnesota, Manitoba or Quebec. It is too bad that they supply electricity most efficiently at the time of the year when demand for electricity is realitively low.
I was under the impression that all these companies like Duke and IEP build these coal-fired plants in Indiana because we’re regulated. The regulation guarantees them a defined return on their investment. We don’t need all the power we’re producing here (as I sit in a part of Indiana with few people, but the world’s largest concentration of coal-fired power plants). Companies like Duke build the plants here and ship the power to places like Virginia.
Indiana doesn’t guarentee a return on investment for the whole plant, but (in effect) only for the portion of the generating plant used to generate power sold in state. If we guarenteed a rate of return on the entire investment it would potentially put the Indiana consumer on the line to assure consumers in other states enjoyed cheap electricity. Of course one might argue that that is exactly what we do when we “out bid” other states in tax give backs to lure large manufacturing plants here.