Deregulation In The Electric Industry

Electricity is the principal force that powers modern society. It lights
buildings and streets, runs computers and telephones, drives trains and
subways, and operates all variety of motors and machines. Yet most people,
despite their great dependence on electrical power, hardly give it a
thought. They flip a switch, turn a key, or pick up a phone and expect the
power to be there without fail.
The almost-century old structure of the American electric utility industry
is in need of change. Almost all interested parties accept the fact that
technological change and altered views of the nature of government
intervention have made the idea of increased competition attractive (Johnson
35). But just how should the competitive market be structured? Some
participants want complete deregulation so they can derive the fullest
benefits of competition quickly. Others argue that the unfettered free
market, however, will cause hardship and inequities (36).
Stability in electrical power has traditionally depended on a system highly
regulated by federal and state government. In recent years, however, many
leaders in government and industry alike have pushed for deregulating the
system to make it more responsive to changes in business and technology and
more open to the forces of free-market competition (Craven C5).
Deregulation has been successful in reducing costs and promoting innovation
in airlines, natural gas, telecommunications and other industries. The
electric industry is next.
Initial steps to deregulate electrical power are now being taken in the
United States and Canada. Today the subject is being actively debated in
board-rooms and state-houses across the Continent. Everyone is wondering
what deregulation will do to the industry. People do not know how it will
affect businesses and consumers, and they are debating whether to move fast
or slow with deregulation.
The "open access" rule of the Federal Energy Regulatory Commission went into
effect on July 9, 1996. Known as Order 888, it applies only to wholesale
transactions. It requires public utilities that own, operate, or control
transmission lines to charge other firms the same transmission rates they
charge themselves, under comparable terms and conditions of service (Encarta
"Deregulation"). This will open control of the market, and it will prevent
utilities from denying transmission grid access through prohibitively high
Public utilities, municipal utilities, and rural cooperatives are the only
customers that are able to purchase wholesale power for resale. Office
buildings provide the power to their end users, but the tenants, building
owners, and managers do not meet the "obligation to serve" definition that
would enable BOMA members to purchase wholesale marker power (Craven C5).
FERC has since stated that it has no intention of moving further and
mandating open access for retail sales, as it believes that to be beyond its
jurisdiction (Gendy 48).
FERC is clearly leaving retail deregulation to the states and the United
States Congress. As a sign of its importance, several electricity
competition bills were introduced in both the House and the Senate this
year. Additionally, the House Subcommittee on Energy and Power held over
twenty hearings in Washington, DC, and around the country (50). Although
the 105th Congress adjourned without a federal deregulation mandate, the
debate is well underway and congressional leaders have stated that
electricity deregulation will rate high on their list for action in 1999
On one hand, restructuring of the electric utility industry in the coming
years means that deregulation may occur in terms of prices and entry of
competitors into the market. On the other hand, government intervention of
some areas of the business is likely to continue to ensure maintenance of
socially desirable functions (Williams 23). Some make the assumption that
restructuring is the same as deregulating, but this is not true.
As much as some utility executives may protest deregulation of prices, many
parties agree that traditional regulation appears flawed. In the prosperous
years, when new construction of power plants reduced the average cost of
electricity, regulation that set rates based on the value of the new
equipment worked fine because rates generally decreased. In the 1970s and
later, utility construction became more and more costly, and the high rates
were a result of those higher costs (Williams 26). Regulatory rules
encouraged utilities to complete long-delayed power plants even if the
demand for power was not likely to warrant such big plants or