Avoiding The Headaches Of Restructuring

Preventive medicine: Two consumer groups say that before restructuring electric
utilities, policy makers should:

o Make sure competition already exists

o Solve transmission problems

o Prevent lawbreaking

o Prevent price shocks

o Allow consumers to influence the market

Two national consumer groups say that California’s
electricity problems of high prices and power shortages can happen here, there,
and everywhere unless certain safeguards get put in place.

The Consumer Federation of America and Consumers Union
issued a 29-page report describing what should be done before changing the structure
of a state’s electric utility industry. Among the recommendations in the report,
Reconsidering Electricity Restructuring: Do Market Problems Indicate a Short
Circuit or a Total Blackout? is that, “States that have not restructured,
should not, until it can be demonstrated that restructuring can serve the consumer
interest.”

Kentucky is one of the 26 states that have not restructured
its electric utilities. A Kentucky state task force studying the issue will make
recommendations later this year.

Here are some of the recommendations from the CFA-CU
report.

Competition should exist before restructuring.
“It is simply irresponsible to create markets that suffer from significant
problems like inadequate capacity at the outset. . . The number of suppliers
and their ability to bring product to market must be sufficient to deliver workably
competitive markets.”

Transmission is so crucial it requires a new
governing body. “The transmission network is an essential, bottleneck
facility in short supply. . . Proposals to let the marketplace solve the transmission
problem are just another expression of the same theological devotion to deregulation
at any price that got us into this mess in the first place. . . The right model
for transmission is a public interest model that creates an entity, public or
private, dedicated to ensuring that this essential facility fulfills its public
functions-ensuring reliability and supporting nondiscriminatory market transactions.
. . A truly independent and responsible system operator must be established.
This system operator should be given the authority to run the system solely
for reliability and social efficiency (lowest total social cost) purposes. Thus,
the entity must be rate-regulated or publicly owned.”

Don’t just punish abuses, prevent them. Guidelines
should be established to identify questionable behavior, and place those companies
under special scrutiny: “Abusive conduct must be identified, investigated,
eliminated, and punished. Much closer market scrutiny than has occurred in the
first few years is necessary. Law enforcement must be proactive, rather than
reactive.”

Price shocks should be prevented. Organized
consumer groups, peaking plants, and new technologies could provide long-term
solutions to avoiding sudden rate in-creases. “Having experienced repeated
spikes, policymakers should also implement a series of circuit breakers to prevent
the sort of abuse that has occurred. . . The most obvious circuit breaker is
a price ceiling or cap that simply does not allow trades to take place at prices
above a certain level.”

The market should be responsive to consumers.
“There is no need to punish consumers with high prices to which they have
little short-term response. Price caps on retail rates should be maintained
until markets are fully competitive. More effective programs for short-term
reductions in demand among commercial and industrial customers must be developed.
Making interruptible rates more effective for those who are interested, and
facilitating aggregation or other forms of participation, may elicit more demand
reduction. …Rewards for releasing power need to reflect the higher prices being
paid at peak.”

You can use your computer to find a complete copy
of the report on the Internet at www.consumer.org/telecom/deregdc1100.htm
or www.consumerfed.org/publist.html.

-Paul Wesslund