What is Electricity Deregulation?
Historic changes are taking place in the electric power industry. Until recently, your local utility company was responsible for the both the production of power and the delivery of electricity to your home or business. As a state regulated monopoly, the utility had to submit to the oversight of the Public Utility Commission and justify the price it charged based upon the actual cost of generation, transmission, and distribution of electricity; the three production states used in getting electricity to you.
The first stage is generation, which is composed of the plant that creates the electricity using fuel such as coal, natural gas, uranium, or wind. Then there are the transmission lines, the high tension voltage wires and towers that carry the electricity from the plant to the local distribution system. The final stage is the local distribution system which is comprised of poles, transformers, and lower voltage lines that bring the power to your house or place of business.
It is the generation part has been deregulated in a number of states, including Pennsylvania. The transmission and distribution parts will continue to be regulated by the state and federal government, respectively, and the price you pay will be based upon the actual cost of these services. Your local utility will continues to operate and maintain the local electric poles and lines that deliver power to your home or business.
What deregulation really means is that the government (the Pennsylvania Public Utility Commission) is giving up its authority to control the price of the generation part of electricity production. Instead of a regulated price based on the cost of producing electricity, the market will determine the price of electricity generation. And the expectation is that, if there is a robust competitive market, the price will not be higher than it should be.
Utilities were initially opposed to deregulation, until they realized they could recover their investments faster and then be free of a lot of government regulations. Most of these debts, which the utilities call “stranded costs”, are the result of massive nuclear plant construction cost overruns. These costs are estimated to be around $200 billion nationwide.
CITIZEN POWER does not support the deregulation of critically needed services like energy. We are especially concerned about letting the marketplace determine the price and reliability of electricity supply. The situation in California clearly demonstrates what can happen when regulatory control is removed. (For a good explanation of the California problem by former CITIZEN POWER board member Harvey Wasserman, click here). However, we are working to try and make deregulation as consumer and environmentally friendly as possible.
Citizen Power is concerned about potential problems associated with deregulating the electric generation industry, including (1) anti-competitive practices, (2) system reliability and (3) the environmental consequences of energy use. The summer 2000 price spikes that occurred in San Diego, the first area of the U.S. to be fully deregulated, may foretell what other parts of the country will experience in a deregulated market.
Citizen Power is working for rules that will insure that those who own generation capacity and the distribution systems do not use their power to keep out competitors or drive up the price of electricity. We believe it is going to be very difficult to make deregulation of this industry work, when most of the generation capacity and all of the transmission lines-the arteries of competition-are owned by one (or a few) of the competitors in a market. At the very least, utilities must turn over the control of their transmission lines to an Independent System Operator (ISO) or Regional Transmission Organization (RTO). This is the only way suppliers will be able to get power to the consumer at a competitive price.
Our second concern has to do with product reliability. Electricity is not like any other product. We can live without a telephone or cable TV, but electricity has become a necessity. However, unlike other necessities (e.g., gas or water), electricity production and distribution is more complex. Because electrons cannot be stored, it is necessary for power production to be matched with consumption. Thus, projection of growth in demand and, if necessary, constructing capacity in time to meet that demand, are an absolute necessity. Insuring this happens in a coordinated way may disappear with deregulation.
Third, we see this period as the moment when the U.S. either seizes a historic opportunity to change the way we produce and use energy, or fails to create the kind of marketplace that will allow entry of new energy technologies. Should deregulation be done in a way that permits a move from regulated to unregulated monopolies, we are likely to see the continued encouragement to waste energy and the use of outdated methods of producing electricity will have an unfair advantage. For example, instead of increased use of renewable energy sources and the efficient use of energy, we are likely to see increased use of dirty coal and unsafe nuclear capacity and continued dependence on foreign energy sources.
CITIZEN POWER is the only community-based organization in the region fighting at the regional, state and federal level to slow the increased concentration in the electricity industry.