Power crunch spotlights deregulation turmoil

John W. Schoen Senior producer • Profile • E-mail

A report that the nation faces more frequent power outages comes just as a decades-long debate over industry deregulation heats up — and shows no signs of resolution.

With roughly half the states stuck midway in a long-term experiment in rate deregulation, consumers in many of those states now face big rate increases next year as rate caps expire. And with billions of dollars of additional investment needed to keep the power grid humming, it’s not at all clear where that money is going to come from.

Until new power plants and transmission lines can be deployed, the reliability of the nation’s power grid will likely get worse before it gets better, according to the North American Electric Reliability Council, which oversees North America's power grid. In a report issued Monday, the group said that a looming power supply crunch will likely worsen over the next decade as power demand outstrips new capacity.

The impact will be felt unevenly but will be widespread, the report said. In the next two to three years, surplus capacity needed to keep the lights on in Texas, New England, the mid-Atlantic, the Midwest and the Rocky Mountain regions will drop to levels that make brownouts and blackouts more likely.

And with power demand seen rising 19 percent by 2015, and generation capacity expected to rise just 6 percent, "the adequacy of North America's electricity system will decline unless changes are made soon," the council's president, Rick Sergel said in the report.

In addition to building more power plants, companies need to upgrade transmission systems, improve energy efficiency programs for businesses and consumers and prepare to replace an aging work force, the council said.

It wasn’t supposed to work this way. Under the old, state-regulated business model, electric utilities controlled both the plants that generated power and the lines used to move it to customers. When more capacity was needed, state regulators oversaw those utilities' expansion plans and decided how much of the cost could be passed along to power customers.

Buoyed by the '80s-era deregulation success stories of the natural gas, telecom, airline and trucking industries, the electric power industry, with the help of Congress, embarked on a similar path. The hope was that by breaking up the ownership of power generation and transmission, competition would spur new, investor-funded capacity, drive the development and deployment of new technology and — over the long run — drive down prices for consumers.

But it hasn't worked out that way. After decades of change that included the near-collapse of California's power industry and the power trading scandal at Enron, the industry is stuck halfway between a market-driven future and a state-regulated past.

“We have one foot planted firmly in traditional regulation, one foot planted in competition,” said Ken Malloy, founder of the Center for the Advancement of Energy Markets. “And (we have) very little enthusiasm for going further from regulation to the competition side and very little from the competitive side to back to regulation.”

Much of the savings to date has come from state-mandated caps and rate freezes that will soon expire — leaving power customers facing potential big increases in their monthly bills. If those caps are extended, utilities say they face big losses because competition hasn’t yet driven down the market price of the power they need to buy on behalf of their customers.

Case in point: Last week top executives of the two big Illinois utilities told a committee of the state legislature that their companies will go bankrupt if lawmakers extend a cap on electric rates.

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