Electrical Utility Deregulation Essays - Electric Power Distribution

Electrical Utility Deregulation Electrical utility deregulation is the process of transforming electrical utility companies from regulated monopolies to market-driven suppliers of competitive energy and services. (Reliant Energy HL&P 1999) It means that customers will have the ability to choose their electrical supplier. Today's utility customers want lower prices, more choice, and better service as well as reliability. The deregulation of other industries such as railroad, trucking, natural gas, and telecommunications has shown people that choice can provide better value. The deregulated electric utility industry would look and act a lot like the long distance phone business. The market would set electricity rates. Sharp increases or decreases in the cost of fuel or customer volume would affect the prices. Prices have decreased even without deregulation however. According to the Edison Electrical Institute, real electricity prices have dropped 27 percent in the last 15 years. But with deregulation there is the potential that they will drop even more. The main issue that is of concern to electrical utility companies is stranded costs. Stranded costs are the past investments utilities were obligated to make in the regulated electric system. These investments were prudently incurred and government-approved to ensure reliability of supply and were partially recovered through customers' rates. (Reliant Energy HL&P 1999) Electrical utilities believe the recovery of past investments should be part of the overall deregulation process since they will be hard to recover in an open, competitive marketplace. If this issue is resolved to the satisfaction of the utility companies, it will open the way for deregulation. As stated in the previous page, the main obstacle to electrical utility deregulation is stranded costs. Two of the main issues surrounding stranded costs are their impact on electricity prices and stranded costs will affect the financial viability of an individual electrical utility. It is hard to determine exactly how much stranded cost will be. They have been estimated to be anywhere from 10 billion to more than 500 billion. And stranded costs may be higher in some parts of the country than in others. According to Research Data International, 86 percent of the stranded costs lie in 10 states that have 43 percent of the electricity market. California is at the top of the list, followed by New York, Texas, Illinois, Pennsylvania, New Jersey, Ohio, Georgia, Massachusetts, and Connecticut. The utility companies want to be able to recover most of if not all of their stranded costs, and if they are not able to electrical prices may be higher because of it. Another problem that has arisen is the concern over possible environmental and social protections built in through regulation would be lost. The Utility Workers Union of America believes that a competitive market would give profit driven companies an incentive to promote consumption, which would undermine many of the conservation programs that are promoted today. I think that we should not rush to judgement on these problems. Many states are implementing deregulation, and we will see exactly what happens and doesn't happen during these experimental times. Similar concerns were raised before the airline industry was deregulated, but it worked out just fine. There are 3 main objectives that electrical utility deregulation hopes to achieve. First and foremost are lower utility rates. Granted that utility rates are relatively low at the present time, with deregulation there exists the potential for them to be even lower. Businesses would have the most to gain from deregulation because of the large amounts of electricity that they utilize. They would be able to use the money saved on other methods or capital to better serve their customers. The everyday household would benefit because instead of having to purchase all the services from a utility company, they would have the option to purchase only some of them, or choose a different company of their liking. Secondly, better quality of service and product as a result of the competition is another objective of deregulation. With many different companies competing for customers, the companies will not benefit from producing an inferior product or poor service. The customers will simply take their business elsewhere. Prices will also be lower, because all the companies will be trying to entice customers with the lowest rates. Competition is what made the American economy into what it is today. It is a vital component of capitalism. The freedom of choice enjoyed in a capitalist system is so often taken for granted. It is what this nation was founded upon. The third objective of deregulation is the creation of more jobs through privatization. With deregulation there will be many more