The Educated Consumer and Electric Utility Restructuring

A retail clothing store advertises, “An educated consumer is our best customer.” Prices are adjusted weekly, and if you know the value of designer merchandise on the racks, you can get some very good bargains. As consumers and as providers of electrical services, contractors could enjoy the benefits of—or be harmed by—utility restructuring that is changing daily. So, ELECTRICAL CONTRACTOR will help electrical contractors keep up with developments in regular columns on electric utility restructuring . Also, look for utility restructuring updates in the “News” section of the ELECTRICAL CONTRACTOR Web site at

From about 1935 until 1992, the electric utility business was fairly stable with vertically integrated regulated monopolies providing most of the power. Congress concluded that competition among power generators was good for consumers and, in the Energy Policy Act of 1992, it created a new class of wholesale power generating companies exempt from previous regulations. Rules of retail competition were left up to the states and regulations for operating interstate transmission lines were left with the Federal Energy Regulatory Commission. Now, electrical contractors and equipment manufacturers must continue to provide products and services to the using public under extremely uncertain utility conditions. Status of state utility restructuring is posted on the Internet at http://www.eia.doe. gov/cneaf/electricity/chg_str/tab5rev.html.

Half the states have set up differing plans and schedules to open retail markets to competition. None of them are yet fully operational because of politically driven transitional price caps to protect consumers from random market price spikes and price floors to protect incumbent utilities from losses that competition might cause their stockholders. However, price controls are scheduled to come off in phases, and then prices will respond more dramatically to laws of supply and demand. For example, Maryland is scheduled to replace price controls with a periodic wholesale auction beginning April 2004.

In rejecting retail competition after monitoring results in other states, the Alabama PUC staff report said, “It has not been demonstrated that all consumers in Alabama would continue to receive adequate, safe, reliable and efficient energy services at fair and reasonable prices under a restructured retail market at this time.” The states with traditional regulated monopolies continue protecting their interests against national objectives.

In opposing attempts at more federal control of transmission lines, Republican Sen. Trent Lott of Mississippi has said, “I don’t trust FERC. They want to socialize the transmission system.” FERC wants authority to force transmission owners to relinquish control to one of several regional independent transmission organizations to permit generators to feed loads anywhere in the country. The struggle between state and federal control leads to the problem of defining boundaries of an electrical utility market. With competitive wholesale generation, the only boundaries are the oceans and international borders, so FERC has forced open access for interstate transmission upon all the investor-owned systems.

Power now comes from plants employing coal, oil, gas, hydro, solar, wind, biomass, nuclear and fuel cell technologies. If retail price were the only driver, perhaps it would all be generated by coal, since that is our most plentiful resource. But federal and state governments have responded to economic, environmental and international interests by manipulating taxes to stimulate alternatives. Wind generation is picking up steam because some people are willing to pay a reasonable premium for “green” power and tax incentives help stimulate capital investment.

However, many unregulated gas generators in the so-called merchant power business have suffered as too many companies built too many plants in some areas. That, in turn, has held down profits. Mirant, formed by Southern Co. for wholesale power marketing, has declared bankruptcy. Reliant Resources took a charge of about $1 billion against third quarter 2003 earnings to write down the value of its deregulated wholesale power plants throughout the country.

Some politicians support competition, but not market based pricing and risky investments. No one wants to see wide spikes in spot prices or bankrupt utilities such as those that helped drive Gov. Gray Davis out of office in California. Unfortunately, free markets cannot work unless price swings are allowed to send demand/supply imbalance signals to consumers and producers.

Neither electricity consumers nor producers are used to free market risks, and a national plan to get from here to there does not yet exist. But, the trend of utility restructuring is inevitable, and contractors must be prepared for that future. So keep alert for upcoming news about utility restructuring from ELECTRICAL CONTRACTOR. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be reached at 703.321.9268 or


About the Author

Lewis Tagliaferre

Freelance Writer
Lewis Tagliaferre is proprietor of C-E-C Group. He may be reached at 703.321.9268 or .

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