fedgazette

Power Struggle

Deregulation, once seen as inevitable in the electric industry, is now on the backburner in most Ninth District states

Douglas Clement - Senior Writer

Published January 1, 2001  |  January 2001 issue

They rise on the prairies like iron giants standing guard over the nation's electricity. The power towers march across America, suspending in air a web of wire that links your home to virtually every other in the continental United States. The North American electrical grid is a fabulous structure—by some measures, the largest ever built by humans.

But the question, increasingly, is whether the accurate metaphor is not one of impassive sentries protecting our power, but of gladiators engaged in a tug-of-war over a scarce commodity. Or a fragile line of dominos that can be taken down by an errant bolt of lightning.

Electricity shortages have afflicted major cities and small towns across the country with disturbing regularity in recent years. Chicago blackouts in the summer of 1999 contributed to the deaths of senior citizens overcome by heat. Wisconsin blackouts closed down businesses in 1997 and 1999. Copper mines in Montana suspended production this past summer when electricity prices shot to historic highs. And the drama that hit California this summer continues into winter as state authorities declare emergencies in the face of high demand and too little supply.

The shortages have a relatively brief history. In the 1990s, following decades of building huge power plants and faced with overcapacity, utilities spent little on new generation and less on transmission grids. But unexpectedly strong economic growth during the decade increased demand for electricity well above forecasts, and the power grid is now straining to meet the demand.

In the midst of this has come a call for deregulation of the government-controlled utilities that have long provided electricity to homes and businesses. Proponents of deregulation say that competition in electricity will lead to better investment decisions, greater innovation and more efficient use of resources. Critics fear that—especially given current supply constraints—deregulation poses such high short-term risks of price volatility and power shortages, that safeguards must be created before even contemplating the longer-term promise of market efficiencies. Proponents respond that supplies will remain short until deregulation brings forth the incentives of the marketplace.

In the Ninth District, two states—Montana and Michigan—have passed deregulation laws, but neither law has taken full effect. Other states have moved slowly, worried that deregulation may be promising more than it can deliver. And the power companies and large consumers that most strongly support deregulation are having to devise new strategies to push their agenda in an environment that has come to regard deregulation as a question, not an answer.

Related articles:

fedgazette, March 2001
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