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Restructuring
of other industries has resulted in benefits such
as increased customer choices, lower prices, and
technological innovation. However, there have
also been negative consequences which should be
kept in mind as we consider electric industry
restructuring. Since deregulation of the airline
industry, service to many smaller communities has
been reduced or eliminated, many markets are
served by only two or three competitors, the fare
system is exceedingly complex, and many offerings
(such as advance-purchase tickets) have
significant restrictions. In the
telecommunications industry, local phone rates
have increased as long-distance rates have
fallen, resulting in cost-shifting between
customers. The unwillingness of competing
telecommunications companies to share directory
assistance information has begun to erode the
accuracy of the information being provided to
customers and caused companies to spend
significant sums to compile redundant databases.
Some long-distance service providers have engaged
in questionable marketing practices, and numerous
mergers have concentrated market power in a
relatively small number of very large companies.
These are examples of concerns that arise in
newly deregulated markets, and they can create
serious problems if not addressed up front. The electric industry is
unique among recently restructured industries in
several key aspects, making the stakes of getting
restructuring right especially high. Electricity
is an essential requirement of modern life. Its
production causes significant environmental
impacts. Unlike other commodities such as natural
gas, electricity cannot be stored, nor can it be
readily substituted for.
Unlike a pipeline
or telephone exchange, the electric power system
is not a switched network, meaning that specific
generators and customers cannot be linked
directly. The electrical supply system requires
close coordination among all producers on the
system, and supply and demand must be constantly
matched to ensure reliable operation. The actions
of generators and customers can affect all others
connected to the system, making it vulnerable to
abuse.
All of this is
complicated by the fact that the electric supply
system is significantly more capital intensive
than either the telephone or natural gas systems:
the original costs for Washington’s
electricity system are around $25 billion,
compared to $9 billion for the telephone system
and $2.5 billion for the natural gas system.
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