Cure Is Needed to Prevent Utility Overbuilding
By Michael Vickerman
It’s hard to believe Yogi Berra didn’t have electricity deregulation in mind when he said, "The future ain’t what it used to be.”
Back in the mid-1990’s a brave new world order--deregulation--was hatched in various boardrooms around the country, one that was championed as a better way to manage electricity supplies for the future. This new paradigm was a perfect match for the antiregulation, business-knows-best spirit of the previous decade.
Promoted initially by large industrial concerns and independent power producers, deregulation became a movement unto itself, complete with its own political allies and pundit class. Some of the more aggressive utilities, looking to offload their bad investments from the 1980’s and channel retained earnings into real estate and the stock market, joined the deregulation choir and duly sang its praises.
Deregulation’s soothsayers foretold a future in which the electric power industry, long a buzzless backwater, would positively hum with life if savvy, streetsmart companies like Enron were part of the mix. In this electricity bazaar-to-be there would be something for everyone: low prices for economy-minded consumers, premium reliability services for companies with large data operations, renewable power for environmentalists, etc. To reap the rewards of this consumer nirvana, all we citizens had to do was to let these fine, upstanding market actors rewrite our laws.
Over 20 states swallowed that guff and swept away those old, musty statutes that protected hidebound utilities from the rigors of competition. Are the new electricity markets in those states performing as advertised? Are residential retail markets thick with alternative providers? Are market signals producing timely additions of new capacity? The answers to those questions are no, no and no. Except in certain isolated circumstances, such as the renewable energy market in Texas, electricity deregulation has been a resounding dud wherever it’s been tried.
Wisconsin lawmakers wisely avoided restructuring retail electric markets, sparing citizens the costly mistakes that continue to plague California. But they were not wholly immune to deregulation’s allure. In a misguided effort to stimulate in-state power plant construction, the Legislature voted in 1998 to deep-six the Public Service Commission’s planning authority and speed up the power plant and transmission line review process.
State officials assumed that market signals would do a better job of allocating new investments in the power industry than agency planners, in large part because that’s what utility managers told them. While they were trumpeting this message, the state’s largest utilities went about streamlining themselves and shedding costs in preparation for a more competitive environment. But the rate reductions made possible by deferring plant modernization and grid reinforcement, starving energy efficiency programs, and laying off workers could not be sustained without inflicting serious harm to the state’s economy.
The bill has come due on that extended period of disinvestment. Yesterday’s deferred projects are becoming today’s 10-year capital budgets. But unlike the ‘70s and ‘80s, there is no public mechanism any more for identifying approaches that avoid unnecessary costs and environmental damage. Can we depend on utilities to refrain from submitting oversized capacity expansion proposals? Not if Wisconsin Energy’s $7 billion Power the Future proposal is any guide. Before the revised siting statutes took effect, the thought of a utility proposing to build five large power plants in 10 years was inconceivable. Not only is it now conceivable, it’s happening.
The late Eric Sevareid once said that “the chief cause of problems is solutions.” Advocates of electricity deregulation justified overturning long-standing regulations on a vision of the future that is turning out very differently. Supporters of the Reliability Act of 1998 believed that overbuilding capacity in a restructured generation market would be economic suicide. As for Power the Future, does anyone believe it is wise public policy to lock in 10 years of power plant construction on the strength of two-year-old economic forecasts, when the outlook was decidedly more bullish?
Hardly a day goes by without news of another power plant or transmission line proposal. Now would be a propitious time to fix the previous cure and bring back an integrated, publicly accessible planning process for Wisconsin’s electric power industry.
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Vickerman is executive director of RENEW Wisconsin, a nonprofit organization promoting conservation and renewable energy sources.
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