Will Consumers and the Environment Be Hurt By Electric Utility Deregulation?
By Wallace McMullen

Large industries and electric and investor-owned utilities are supporting restructuring, or "deregulation", of the electric industry. The avowed goal is completion among electricity vendors. The idea was given a major impetus in 1995 when utilities were required to accept and transmit power they had not generated across their service area. This is called "wheeling" power in the industry.

The restructuring of the electric power industry could be very detrimental to small consumers and the environment. Utility companies might be able to evade environmental concerns under the guise of being competitive, despite the social costs and adverse environmental impacts of generating and selling electricity at the lowest dollar cost without concern for the long-term effects involved. Another undesirable possibility is that small consumers might get stuck with paying the bills for past investments by utility companies which become uncompetitive in a restructured marketplace...nuclear generating plants, for instance.

The push for restructuring is coming from big industrial electric consumers that want to get the lowest price possible on the electricity which they consume. From the utility point of view, big customers with a consistent demand for electricity are more desirable than small residential consumers who have great variation in their seasonal consumption of electricity. The result of these factors in a deregulated market structure might give the big customers lowered rates, and produce higher charges per unit for the small customers. This would especially hurt residential ratepayers with limited income.

The Sierra Club has been participating in a Task Force studying these issues which the Public Service Commission convened. Ken Midkiff was appoint to the task force, and Rachel Locke and Wallace McMullen have attended several meetings as his representatives. We intend to advocate a pro-environment and pro-consumer viewpoint.

Steve Mahfood, Director of the Missouri Department of Natural Resources, told our delegation that Missouri currently has lower costs for electricity than the surrounding states. This would seem to indicate that Missouri need not rush to "deregulate" at this time, as we are better off than our neighbors. We can watch the outcome of other states' experiments, without a loss of competitiveness, and then choose the best ideas once the results of new structures become apparent.

Gory Details:

Electric utility managers conceptually divide up their industry into many different functions, which tends to make the discussions of deregulation very complex. These functions include the generation, transmission, and distribution of electricity, meter reading, and customer billing. Most deregulation scenarios assume that these functions will no longer all be performed by one company.

With a new division of functions, you get a new cast of characters, like "Retail Electric Providers" (REPs), and "Independent System Operators" (ISOs), who may provide reliable electric service by operating a "Poolco" (a statewide entitity that buys the electricity from generation firms and resells it to local distribution firms, with the prices for buying and reselling competitively determined, while performing some or all of the functions of an Independant System Operator.)

One of the stated goals is that consumers can tell their local utility company who they want to provide their generation service. Think of this as telling your local telephone company which long distance service you want. Theoretically, information would be available so that consumers could make informed choices. We believe that such information should contain environmental data: type of fuel used (coal, oil, natural gas, solar), emission or discharge data, ownership of company and so forth. With such information, consumers could choose solar-generated or natural-gas generated power, both of which are much less polluting than coal or oil.
Another difficult area involves what the utility industry refers to as "stranded costs". While this can quickly get real complicated the basic premise is that utility companies made investments in power generation plants under the current regulatory system, which guaranteed them a specific return on their investment. If the regulatory system changes, those returns are no longer guaranteed, and those investments become "stranded". Fortunately or unfortunately, depending on perspective, nuclear power plants probably will not survive under a competitive system, and utility companies owning those plants will be howling the loudest to recoup their bad investments.
It is very difficult sorting out all of the conflicting interests among utility companies. Each has its own set of goals, depending mostly on ownership. Some municipalities own their own power generation plants, others buy all of their electricity. There are rural electric co-ops, for-profit investor-owned plants, and federally owned hydroelectric dams.

Sierra Club positions.

Rather than taking sides in all of this, the Ozark Chapter and the National Sierra Club have established some goals. We will be examining the various developments, policies, decisions and strategies from the perspectives of these goals:

• That ALL consumers must benefit equally - small as well as large.
• That energy efficiency in generation and consumption will be incorporated into any new regulatory system.
• That government subsidies, tax incentives, and monies for research and development be given to alternative and renewable sources of energy. We must end reliance on fossil fuels, nuclear and hydro generation sources, and develop sustainable alternatives. The technologies are in place. All that is needed is to provide the same government largesse to solar and wind generators that was supplied to current generation systems. These new sustainable systems could be developed incrementally and could eventually supplant current power sources.