Hey! Maybe There Was a Reason They Regulated this Stuff Back in 1935! Ya Think?

Well, the Billings Gazette at least bothered to report what many of us have suspected for some time. Electric utility deregulation, or "restructuring," has not reduced rates for industrial consumers - the group it was most expected to help - and in some cases created costs that raised prices, three experts have concluded.

"There is no evidence that the price or rate of change of the price (for industrial consumers) has been any different whether in restructured states or not," said Jay Apt, professor of engineering and public policy at Carnegie Mellon University in Pittsburgh.

Look, electricity isn't like other commodities.

When the price of hog bellies goes too high, you can quit buying hog bellies. If a drought in South America makes the price of coffee go through the roof, you can drink tea or use up the coffee that you bought on sale last month and put in your freezer. Electricity is an essential service. We have to have it. The price is inelastic, particularly in the short (e.g., several year) time frame. And, it can't be stored (Note to electricity geeks, I know about water behind the dam. It's irrelevant to my point. Bite me.) So it makes ZERO sense to deregulate it. ZERO. None. Nada.

We've know for some time that retail customers, Jane and Jennifer Homeowner, don't benefit from deregulation and, see, e.g., California, are often hurt by it. The big push for electricity deregulation has always come from power marketers such as Enron and from large industrial consumers who imagined they'd be able to get a better deal from the Enrons of the world. (OK, and, in the case of California, from Thatcher devotee William Fessler.) As this study shows, industrial customers hbenefitednefitted from deregulation, either.

That's not very surprising for a number of reasons. First, deregulation itself has had huge costs. Setting up and running ISOs and RTOs that duplicate what the public utilities used to do has been phenomenally expensive. Second, public utilities are the providers of last resort who must have enough generation on hand that they can step in and supply those industrial customers the very morning that Enron or Calpine declares bankruptcy, abrogates its contracts (which is generally the point of a power marketer going bankrupt), and quits supplying power. Someone has to pay for that backup generation. So, no savings. Finally, experts, such as Harvard's Paul Joskow believe that we would have to invest massive amounts of money in new transmission lines, which no one wants in their back yard, and which are hardly profit centers for their owners, in order to "make" deregulation work. That's so because in many cases, public utilities used to substitute generation for transmission when that made economic or ecological sense. The system just wasn't built to work under the deregulated market, as the East Coast blackout from several years ago made all too evident.

But I don't expect Dick Energy Policy Committee Cheney's administration to admit any time soon what even the Billings Gazette now knows.