MORRIS: Electric Deregulation

A frenzied rush toward electricity deregulation is sweeping the country. So eager are the powers-that-be to usher in this brave new world that California, the first off the block, arbitrarily set January 1, 1998 as the date everyone would get to choose their electric supplier, only to discover on December 24 that computer systems weren't up to this level of complexity and had to put a tempoary hold on the whole enterprise.The buzzword is "choice." Give customers the right to choose their electricity supplier as they now choose their long distance company and prices will drop, proponents insist. This simple proposition is wrongheaded on two counts.First, electricity prices are already dropping and have been for several years. The radical deregulation currently being adopted will not accelerate that trend in the short run and in the long run, if the experience from airline and phone deregulation is any indication, prices will rise, not fall.Second, and more important, the choice being offered does not change the customer's relationship to the supplier. We will continue to be dependent on some remote corporation for our electricity. This is unfortunate. For as I predicted 15 years ago in my book, Be Your Own Power Company, households and businesses now have the opportunity to become independent producers of power. This historic possibility is the result of technological and policy changes.Twenty years ago Congress initiated a revolutionary dynamic by abolishing the monopoly utilities held over electric power generation. The independent power industry was born. By 1990, it was building almost half of all new power capacity. By 2000, three of every four power plants could be built by independent enterprises, with or without deregulation.The highly competitive independent power industry lowered the price of electricity. The size of the average power plant was cut in half, allowing new plants to come on-line in a quarter of the time as ones built in 1985. The cost of new plants plummeted by 30-60 percent.On the distribution side of the electricity equation an equally remarkable dynamic is occurring. Twenty years ago, two thirds of the capital invested by utilities was used to build power plants. By l989, investments in transmission and distribution equalled those for generation. Today, delivering electricity to the ultimate customer may account for as much as 80 percent of new utility construction outlays.One way to avoid distribution costs is to install very small power plants at the customer end of the distribution lines. Such plants can cost two or three times more than a central power plant and yet still be less expensive overall if they eliminate the need to dig up streets to upgrade a distribution line or spend $10 million a mile to build a new high-voltage transmission line.Many companies are taking advantage of the new economics of the $300 billion a year electricity industry by offering very small power plants that can be at the customer's site. Allied Signal will market a 6 feet tall and 5 feet wide power plant that can make a typical restaurant or small retail outlet self-sufficient. Capstone Turbine Company, run by two ex-Allied Signal employees, is offering an even smaller turbine. Indeed, the Capstone technology initially was intended as a car engine.Which brings to mind another overlooked piece of the electricity revolution -- the coming of age of the electric vehicle(EV). The EVindustry is introducing low cost car-sized power plants and inexpensive electric storage systems. The car engine of the future could serve as well for a house. And a low cost electric storage system is the holy grail for solar electric systems. Solar systems rely on an intermittent energy source(the sun doesn't shine all the time) yet generate all the electricity needed by an efficient house (and an electric car) on a year round basis.The next furnace or a boiler you purchase could also be a tiny power plant that can supply all your electrical needs, with a bit left over to sell to your neighbors. The next time you install a new roof it could contain thousands of tiny solar electric generators.Given this technological dynamic, we should be designing rules that make us a nation of self-reliant electricity producers. Instead the rules we are developing seem to be moving us in the opposite direction. State and federal governments have aided and abetted an unprecedented wave of mergers and acquisitions. Some experts predict a handful of megacompanies could control most of our electricity system by the early part of the next century.About half the states now have net metering laws which allow households and businesses to turn their electric meter backwards and actually get a check from their local utility, a perfect rule for encouraging decentralized power production. Yet a recent ruling by the Federal Energy Regulatory Commission puts these laws in danger."Choice" should never be confused with ownership, for it is ownership that confers real power. Today the goal of the deregulationists is to allow us to choose from dozens of electricity suppliers rather than one. A more profound and far more attractive goal would be to design policies that enable us to become producers of power ourselves.


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