How to Solve the Electricity Crisis

We take electricity for granted. When we flip the light switch we expect the light to go on. We don't much care why or how that happens. And we don't care about the intricate workings of the complex generation and delivery system behind that everyday miracle, unless that system breaks down or rates skyrocket.

Which is why the recent electricity crisis -- rolling blackouts in California, soaring electricity prices in Chicago, electricity system fluctuations that burden high technology users -- has come as such a shock. The level of debate about the electricity system has reached an intensity not seen in a hundred years.

Ironically, the current debate is reminiscent of the great electricity debates that occurred throughout the country, and the world, at the turn of the 20th century. Back then, the nation was mesmerized by electricity's potential. People strove to master its intricacies. Great battles were waged over who would own and control the power plants and transmission lines. Would we have customer or investor ownership, local or absentee governance? Would we have monopolies or competition? Would electric companies be regulated by local, state or federal governments?

Today these same issues are re-emerging as the nation rewrites the rules that will determine the future shape, scale, and ownership structure of our $250 billion electricity system, the nation's third largest industry after health care and automobiles.

The changes are coming in rapid-fire fashion. At the national level, the Federal Energy Regulatory Commission (FERC) is writing the rules that will open the transmission lines to competition (i.e. wholesale competition), while twenty-four states (and the District of Columbia) with well over half the nation's population have already introduced competition at the retail level.

Regrettably, the current debate has, until very recently, been far too narrowly focused. The central issue has been, "Should customers have the right to choose their suppliers?"

It is a remarkably restricted definition of "choice." Even the most fervent supports of customer choice (i.e. retail competition) concede the lack of any grassroots demand. "Citing surveys finding most consumers content with their electric service providers, [FERC Commissioner James] Hoecker called the public's general silence in terms of demanding customer choice 'positively deafening.'" After the Texas-New Mexico Power utility withdrew its restructuring plan (titled "Customer Choice") when it encountered substantial public opposition, a utility spokesperson lamented: "We're trying to give our customers something that would be good for them, but this is apparently something they don't know they need."

For states that acted early to bring retail competition to their electricity markets, the results are in. Customers -- especially residential customers -- are simply not choosing new suppliers. In Massachusetts, after nearly two and-a-half years after competition, less than one-tenth of one perent of households, representing less than two-tenths of one percent of the state's total electric load, had switched suppliers. Pennsylvania has done better. As much as 10 percent of Pennsylvania's residential customers have switched suppliers. But that is largely because the state's regulatory agency designed a rate structure that in effect penalizes customers who remain with their regular utility.

Evidence from other monopoly sectors shows that, even when choice is offered, only a minority of customers participate. Fifteen years after long distance telephone was opened to competition, 54 percent of people still had not exercised choice. Two-thirds of all customers remained with AT&T.

A 1997 survey of all 50 state regulatory commissions by Martin Kushler identified only two -- Maine and Vermont -- that had conducted a scientific survey of consumers about utility restructuring. Deregulation was not in and of itself a high priority. When residents of Maine were asked to choose between having utilities "deregulated to allow greater competition and possibly lower rates" or to "continue to be closely regulated in an effort to protect consumers and the environment," 54 percent preferred the latter.

People did express preferences, but for the kind of electricity choices that haven't been offered. Many, for example, preferred a more localized electricity system. Maine participants were asked, "Would you like to be able to choose your electric power provider if it meant the possibility of losing Maine-based utility companies to New England-based and nationally-based companies?" Fifty-six percent said no. In Michigan, a state which did a poll but not a scientific survey, the option of "buying additional power from another state or Canada" ranked dead last, at just 19 percent support, even lower than "building a nuclear power plant" (which had 21 percent support)!

In other words, electricity deregulation has occurred not because of popular demand or necessity, but because of two powerful players: independent power producers and large industrial customers. As the National Journal notes, "At both the state and federal levels, homeowners and small-business owners have been relegated to the sidelines in the electricity deregulation debate. The playing field has been dominated by business leaders who crave cheaper power and by new energy companies eager to serve the most lucrative customers." The majority of electricity customers have become aware of the decisions made on their behalf only after-the-fact.

For proponents of deregulation, the only end is to allow customers to choose their electricity supplier. The only means is a virtually automated national marketplace for electricity.

But this is far too narrow a policy framework. The end -- customer choice -- defines us solely as consumers, ignoring our right and desire to choose systems that enhance our roles as producers and citizens.

The means -- an unfettered marketplace -- ignores the inability of the market to take into account important social values (e.g. universal service) or long-term costs (e.g. environmental degradation).

Everyone agrees that any future electrical system should be at least as safe, reliable, inexpensive and universal as the present one. Yet those standards can be achieved through a variety of ownership structures, generation technologies and fuel sources. We need to decide upfront about where we want to end up. The rules we create will channel entrepreneurial energies and scientific genius and investment capital in specific directions. What direction do we prefer?

In my opinion, policy makers should create rules that decentralize production, devolve authority, and devolve responsibility. Specifically, they should:

Decentralize capacity. The new power rules should encourage us to become "prosumers," to borrow Alvin Toffler's felicitous 25 year-old term. As Thomas Jefferson observed, the bedrock of a healthy democracy is the widest distribution of property. He defined property as wealth-producing assets. Technological advances offer us the opportunity to make decentralized capacity a key feature in our future electricity system, a literal way of giving power to the people.

Devolve authority. Policy makers should strive to decentralize not only electric power but political power by encouraging customer ownership of the distribution and transmission lines. By definition, customer-owned utilities are more democratic, located closer to customer-citizens and therefore more responsive to their values. The new power rules should not only nurture the capacity for self-reliance but for citizenship.

Accept responsibility. Electricity production is a key cause of environmental pollution, from acid rain to toxic wastes to global warming. The new power rules should force us to take responsibility for the impact of our consumption habits on future generations and on those who live outside our communities.

For over a century, we have been designing policies that move us in the opposite direction. Toward larger power plants. Toward longer distances between producer and consumer. Toward more distance between those who make the decisions and those who feel the impact of those decisions.

But the crisis in California has made us rethink our approach to deregulation. Most states are now taking a wait-and-see approach. Even in the states that have already deregulated, (and at the federal level, where wholesale competition is the goal) the rules are not yet set in concrete. There is a great deal of fluidity in the decisionmaking. If we really care about a more democratic, environmentally benign, and equitable electricity system, let's work to marry our kilowatt-hours to our values.

For ideas about how you can help contribute to a fairer electricity system, check out The New Rules Project (www.newrules.org/electricity), publishers of "Seeing the Light," the book from which this article was excerpted.