On a brisk October evening, 40 people have gathered in a government
building in downtown Minneapolis to do the hard work of democracy.
At the front of the room, Minnesota Department of Commerce policy
analyst Mike Bull is sucking lozenges, hoping not to lose his voice
as he gives his presentation for the third time today "and maybe
the billionth" in the last few months.
"I'm going to rely on you all to keep me awake," jokes Bull, beginning
his talk. No problem there: This audience is vocal and diverse.
In the back of the room sit two well-dressed officials from Xcel
Energy, the nation's 10th largest electric utility. Directly in
front of them, distributing leaflets, is a young man in a jumpsuit,
yellow hard hat and red cape with yellow letters proclaiming him
"Captain POWER," as in "People Organizing for Workers, the Environment
and Ratepayers." Elsewhere sit senior citizens, business owners,
union members, environmentalists and policy wonks.
What is Deregulation?
Under the regulatory framework in place since the 1930s,
electric utilities—viewed as natural monopolies providing
generation, long-distance transmission and short-distance distribution
of power—have been granted exclusive rights to all customers
within designated geographical areas, with guaranteed rates
of return. In exchange, the utilities accepted the obligation
to serve those customers at prices set by state regulators,
based on production costs.
Under deregulation, the utilities would be broken apart
into generation, transmission and distribution operations.
The latter two—still seen as natural monopolies—would
continue to be regulated by the government, but generation
would be spun free. Theoretically, deregulation would bring
market efficiencies to power generation, allowing companies
the right to sell electricity wherever they could, at whatever
price the market would bear. Consumers would pick the electrical
supplier of their choice, much as we now choose long-distance
phone service. The endpoint would be retail competition in
For two hours, they debate the future of Minnesota electricity,
a future that might be dark. Regional planners project a 5,400-megawatt
shortfall in the Upper Midwest by 2008, says Bull, the equivalent
of "five Prairie Islands," referring to an Xcel nuclear power plant.
A gray-haired man asks if the department's plan to deal with the
power shortage has been endorsed by AARP and wonders whether electricity
prices will rise or fall. An Xcel executive fishes for—and
receives—a compliment on Xcel's environmental programs, but
Captain POWER isn't pleased. A business lobbyist doubts the plan
provides enough incentive for utilities to build new power plants.
A recent transplant from Massachusetts says electricity deregulation
hasn't worked there and won't here.
The Minneapolis meeting—polite, but divided—is a microcosm
of the national debate over electric power. Across the country,
including the Ninth District, policymakers and utility officials
are worried we're running short of power. Americans are demanding
more electricity, thanks to a growing economy and increased use
of electrical appliances.
But supply has not kept up. For a variety of reasons, including
environmental restrictions, uncertainty over the future regulatory
environment and inaccurate demand forecasts in light of the unanticipated
economic growth in the 1990s, utilities have built few power plants
in the last decade. Largely for the same reasons, the transmission
grid was not greatly strengthened over the same period. So as demand
has increased, utilities have struggled to meet it (see chart).
The result: blackouts, brownouts and price spikes, and an increasingly
loud debate over what should be done.
At the epicenter of this debate is deregulation, the idea that
the electric power industry should be freed of regulatory oversight
that has controlled it virtually since its birth. Until quite recently,
both friends and foes of electricity deregulation have viewed it
as pretty much inevitable, part of the wave of deregulation that
has transformed trucking, banking, telecommunications, airlines
and railroads in the past two decades. People began to refer to
electricity deregulation as the "Big Bang," an expression that suggested
unstoppable power. But recently, policymakers and even some electric
utilities have begun to wonder if deregulation promised too much,
if the Big Bang might be premature.
Chastened by apparent breakdowns in the market and regulatory
processes on both East and West coasts—as well as England and
other countries that have moved toward deregulation of their electricity
industries—state governments have slowed down, even backtracked.
Many states, including most in the Ninth District, are now pursuing
more gradual paths which suggest not an unfettered industry operating
under the invisible hand of the free market, but an electrical power
system that, while significantly changed, will still remain subject
to many layers of government regulation.
Most economists argue that deregulation of generation makes sense
in the long run, because it brings a competitive environment to
a formerly regulated industry, resulting in more efficient allocation
of resources. They also warn that California has not experienced
true deregulation—a variety of price caps and other regulatory
controls have remained in place—so judging electricity deregulation
by looking at the California experience is not a fair test of deregulation's
long-term promise. But policymakers remain highly sensitive to the
short-term disruptions that arise during any transition from regulation
to deregulation, and they're becoming increasingly reluctant to
test the waters.
Deregulation in the Ninth District
In the Ninth District, states have embraced deregulation with varying
levels of ardor (see table). Montana jumped at it, passing a deregulation
law in 1997. But the passion has recently cooled. Michigan's Legislature
has mandated retail competition by January 2002, but concerns have now
arisen about market power and a proposed 48 percent increase in transmission
charges. Wisconsin started fast, but made a hasty retreat when blackouts
revealed an inadequate infrastructure. Minnesota has proceeded very slowly,
and the Dakotas, too, are playing it cool. The main reason for this varied,
but generally slow movement in the Ninth District? In a word, price.
According to most analysts, the primary driver behind the electricity
deregulation movement is the dramatic difference in electricity
prices nationwide. In 1998, when the average national price of electricity
was 6.7 cents per kilowatt hour, New Hampshire had the nation's
highest price: 11.9 cents, while Idaho residents paid just 4 cents
(see data map).
Natural access to coal or hydroelectric power accounts for some
of the differential in electricity prices among states. Two other
key factors are the long-term contracts some utilities entered into
with small generators following federal legislation in 1978 to encourage
alternative energy, and the amortization of expensive nuclear plants.
Not all states entered into high-cost generator contracts, and states
also differed in their pursuit of nuclear power, so by the 1990s,
electricity prices varied widely among the states.
Big electricity users took notice. "Large industrial consumers,
located in states where electricity prices are significantly higher
than those in other states, have used their considerable influence
to convince state legislators and regulators to take actions that
will lower electricity prices," according to the Energy Information
Administration, U.S. Department of Energy. Or in the words of Massachusetts
Institute of Technology economist Paul Joskow, a leading authority
on the electric power industry, "Electricity sector reform efforts
... have been concentrated in the states where the gap [between
local retail prices and projected wholesale prices] is largest.
They have been led by large industrial customers interested in lower
So the states that have moved most quickly toward deregulation
tend to be those with the highest prices, those with the most to
gain by going after cheaper electricity in low-price states. Almost
all Ninth District states have cheap power, so the price motivation
has been low. The exception is Michigan, where consumers paid 7.1
cents per kilowatt-hour in 1998, which is above the national average.
The Upper Peninsula (U.P.)—accounting for just 6 percent of
the state's electricity sales—is an electrical odd fish, being
served by Wisconsin utilities.
The U.P. aside, discussion of deregulation tends to follow state
borders, since state regulatory bodies have jurisdiction over utilities
serving their residents. While each of the Ninth District's states
has a unique tale to tell, Montana, Minnesota and Wisconsin have
stories that best illustrate the three most critical issues: price,
production and delivery of electric power. Montana has deregulated
but price volatility is forcing a partial retreat. Minnesota lawmakers
won't even think about deregulation until they get a handle on generation.
And Wisconsin, having partially addressed generation, is being tripped
up by too few wires.
Montana: Big skies, high prices
Ironically, in the Ninth District, the first state to push through deregulation
was the one with by far the cheapest electricity: Montana. Because of
the peculiarities of the American power grid, Montana electricity is connected
most closely not with the Upper Plains states, but with the Western Interconnected
System, consisting of states west of the Rocky Mountains. So while Montana's
average electricity price of 4.8 cents per kilowatt-hour compares very
favorably with prices elsewhere in the Ninth District, the state's large
power users—copper and aluminum producers as well as paper mills—recognized
that they could reduce costs significantly if they had access to still
cheaper power from either Washington (4 cents), Idaho (4 cents) or Wyoming
In April 1997, with full support from the Montana Power Co. (MPC),
the state's largest utility, the Montana Legislature adopted the
Electric Utility Industry Restructuring and Customer Choice Act.
The bill allowed large industrial consumers retail access by July
1998 and mandated retail access for all consumers by July 2002.
Initially, Montana deregulation worked like a charm. Businesses
sought out new energy contracts, breaking their ties with regulated
utilities. Even smaller businesses like the Meadow Gold Dairy in
Great Falls found better deals. "We've seen significant savings,"
Ella Mae Howard, Meadow Gold's plant manager, told the Great
Falls Tribune in June 1999. The company had switched from Montana
Power to Commercial Energy and found not only lower prices, said
Howard, but better customer service. Large companies saved even
But the drought of 2000, combined with the diversion of water
from hydroelectric power plants in the Northwest to allow salmon
to spawn upstream, decreased power supplies in the Northwest at
the exact time that Californians—newly deregulated and also
connected to the Western grid—turned on their air conditioners.
Electricity marketers saw they could make more money in California,
and power flowed south on the Western Interconnection. Local demand
met supply at a very high price.
"Prices have gone up a lot, just outlandish," said Meadow Gold's
Howard in a recent interview. "We suffered a couple of very difficult
months." In fact, power costs skyrocketed for many Montana businesses
and forced closures at several. Louisiana Pacific temporarily closed
its fiberboard plant in Missoula in August when its $25-a-megawatt
contract expired and the daily spot price reached $457 per megawatt.
Production was suspended at the Continental copper mine in Butte,
and 365 workers were laid off, when power prices surged. The mine's
owner, Montana Resources, had been Montana Power Co.'s second or
third largest customer prior to deregulation. "We had power until
the 30th of June at about $32 a megawatt hour," said Russ Ritter,
director of government and corporate affairs for Montana Resources.
"It went up to $600 the next day."
Prices have dropped some since then, and are lower still on long-term
contracts, but with no control over the price of copper, Ritter
isn't interested in contracts longer than 18 months. "Hindsight
is 20/20," reflects Ritter. "We'd have probably been better off
to stay on the Montana Power grid instead of getting off, because
[we'd] still be buying power somewhere around $38 or $40 a megawatt
"Industrial customers actually saved money on the order of 5 percent
to 15 percent for the first couple of years [of deregulation],"
observed Bob Anderson, a Montana Public Service Commission (PSC)
commissioner. "But this summer, they lost all their savings and
more, so they're much worse off now than they would have been had
they stayed on a tariffed rate."
Despite the rocky start, many Montana businesses continue to support
deregulation, and they say the solution to high prices is to bring
in more power plants. "We're still positive about deregulation,"
said Howard. "It's a question of not enough generation capacity."
Ritter agreed: "We are fully in favor of deregulation because
we feel the only way that there's going to be real competition in
Montana for power is through the building of new electrical generation."
The fear of too little local generating capacity seems unfounded
given Montana's status as the nation's fourth largest electricity
producing state, on a per capita basis. But the anxiety was no doubt
exacerbated by a summer which added California demand to Montana's
Another source of energy insecurity was Montana Power's decision
to sell—in the midst of deregulation—both its generation
and transmission assets, and to concentrate on telecommunications
instead. MPC's dams and coal plants were sold to a Pennsylvania
firm for well above book value, and, pending regulatory approval,
its transmission network will be bought for $1.1 billion by NorthWestern
Corp., based in Sioux Falls, S.D.
Regardless of who owns the generators and transmission lines,
Anderson says Montana moved too fast in deregulating its electric
utilities. "I don't expect anybody to follow us. In fact, I'd advise
them not to," he said, noting that while deregulation may work for
Montana in the long run, the state should have proceeded more cautiously.
"Look before you leap," he would advise policymakers elsewhere.
"[And] look at a couple of things. One, is the wholesale market
working well, and the other, is having sufficient capacity."
After reviewing this summer's experience, the Montana PSC has
proposed stepping back from its quick transition to retail competition.
Instead of switching residents and small businesses to retail electric
markets in July 2002, Montana's Big Bang may be delayed until 2004.
Minnesota: Too little power?
Advice to move slowly on deregulation has been heeded with a vengeance
in Minnesota. State legislators have studied and discussed the matter
since 1992. But even its staunchest legislative advocate, Rep. Ken Wolf,
is doubtful of passing anything substantive in the near-term, and fearful
that if he tried, he'd end up with a legacy like that of Steve Peace,
"the guy who authored the California [deregulation] bill and now wants
to go back to socialism."
|1998 Electricity Statistics for Ninth District States
|Average electricity price,
in cents per kilowatt-hour
|Primary generating fuel
|Retail sales of electricity,
in millions of megawatt-hours
|Generation of electricity,
in millions of megawatt-hours
|Generation per capita,
|Data are not available for Michigan's Upper Peninsula.
Source: Energy Information Administration, U.S. Department of Energy.
Xcel Energy, the state's largest utility, also concedes that a
deregulation bill is probably not in the cards for Minnesota this
legislative session. "[When] you've got an attorney general and
leadership of state agencies saying 'we don't want this to happen
yet,' you've got quite an uphill battle," said Judy Poferl, director
of regulatory administration for Xcel. [Xcel's chief executive officer,
James J. Howard, is chairman of the Minneapolis Federal Reserve
Linda Taylor, deputy commissioner of the Department of Commerce,
agreed. "I don't think there's a policymaker in Minnesota who's
really interested in restructuring right now."
What has caught people's attention, though, is the Upper Midwest's
looming power shortage. While the exact size of the shortage and
the date it will appear depend on whom you're talking to, everyone
seems to agree that Minnesota—and the regional power grid to
which it belongs, the Mid-continent Area Power Pool (MAPP)—will
have greater electrical demand than supply within the next decade.
People do not agree, however, on how to address the shortage.
The Commerce Department plan proposes several steps to both dampen
demand and increase supply: increasing conservation measures, improving
demand-side management, strengthening transmission capacity and
streamlining power plant siting procedures. But Xcel, other Minnesota
power providers and business leaders say the proposal doesn't get
to the heart of the matter.
"What we question is whether those pieces are really going to
add up to enough to address this looming issue," said Xcel's Poferl.
"You've got to get at the underlying, fundamental things that are
disincenting generation from coming here." Poferl says that if you
look at where generating capacity is being built nationally, "it's
a very striking correlation between the markets that have gone through
restructuring and where the generation is going."
Bill Blazar, senior vice president for government affairs for
the Minnesota Chamber of Commerce, agrees with Poferl and suggests
that the Chamber is likely to push for deregulation this year, though
he, too, views it as a tough fight. "If you pass a bill," said Blazar,
"that says the new structure of this industry is going to be one
where customers have the opportunity to choose their source of electricity,
and here's how it's going to work, and here's the date its going
to begin, I think it'll give the investment community and the power
producing community, not only the certainty that they want, to know
the rules of the road, but also it will tell them that this is a
market where they can deal directly with customers."
Customers like IBM in Rochester, with an annual electricity bill
close to $10 million, agree that deregulation is the way to go.
With retail choice, IBM could opt out of its regulated municipal
supplier, Rochester Public Utilities, and might save 20 percent
to 25 percent on its electric costs, according to Dave Reichert,
manager of environmental, chemical and energy services for IBM's
Rochester facility. "We believe we suffer a penalty under the present
system because we're not able to shop," Reichert said. Like Blazar
and Poferl, Reichert believes the Department of Commerce plan has
its good points, but doesn't go far enough. "They talk about streamlining
the permitting process [for a power plant], and that's fine," he
said. "But first you have to have somebody who wants to build one."
State regulators respond that the rules of the road are quite
clear without deregulation and suggest that if investment in generation
doesn't materialize on its own, "you would do it in the old-fashioned
way, through the regulatory process," said Thomas Bailey, assistant
attorney general. "Come out here, propose your plant, we'll do a
rate case, you get to put the costs into rates, and you'll get a
guaranteed rate of return."
Commerce's Taylor is even more blunt: "The rules are clear. The
rule is that individual utilities are obligated to provide service
to the customers in their exclusive service territories. The rule
is that if you don't have enough power, you go get it. I don't know
how much more clear the rule can be."
It sounds like a staring contest. Utilities seem to be threatening
not to build generation unless the state makes concessions, and
regulators say they'll use the force of law to get their way. Who
will blink first?
A broader question is whether the premise is accurate: Will corporations
building power plants elsewhere in the country not build (or build
only at a premium) in the Upper Midwest if states don't promise
retail competition? And if deregulation is necessary, is it sufficient?
Will it guarantee greater supply? The questions remain to be answered.
"How retail competition is going to get supply built is a mystery
to me," said Taylor. "I think what retail competition gives us is
chaos. Eventually the market will figure itself out, and eventually
we will get new supply, but in the meantime, there are going to
be big losers. And our role here is to try to protect the public
interest. ... We can have chaos happen in lots of different areas
of the market that don't involve people's survival. But electricity
is a survival issue in Minnesota."
While IBM has nothing but praise for RPU's service, it, too, sees
reliable electricity as a matter of financial survival and doesn't
see that state regulators are doing much to ensure reliability.
"We're concerned right now about where is the power going to come
from in three or four years," said IBM's Reichert. "It takes a long
time to build one of these plants. There are those who would say
its already too late. ... So I'm a little frustrated to hear that
first we have to fix the system and then we can change ... to something
else. The logic just kind of escapes me."
Wisconsin: Fast track derailed
Wisconsin has moved faster than Minnesota. It was on the Big Bang fast
track, in fact, with a comprehensive 32-point plan to bring about retail
competition by 2001.
But a heat wave in summer 1997, combined with shutdowns of Point
Beach nuclear power plant as well as several Illinois generators
forced Wisconsin utilities to shut off power to 80 businesses and
call on other customers to cut back.
A year later, another chance event further underlined the fragility
of the grid. On June 25, 1998, lightning hit the major power line
between Minnesota and Iowa; minutes later, another bolt hit the
King-Eau Claire line, the main link from Minnesota to Wisconsin.
Within seconds, parts of northern Minnesota, Wisconsin, Manitoba,
and Ontario were blacked out.
Reliability—long the Holy Grail of the industry—was
seriously in doubt. Transmission engineers, utility presidents and
Wisconsin's Gov. Tommy Thompson began to question whether the state
was ready for deregulation, and they directed their attention instead
toward infrastructure improvement. "Restructuring, at least as it
relates to implementing retail competition, has been put on hold,"
concluded the Public Service Commission (PSC) of Wisconsin, on its
electricity restructuring Web site.
The first concern—as in Minnesota—was generation. "Our
focus changed [from deregulation] to getting some stuff built,"
said Mark Williamson, executive vice president at Madison Gas and
Experts predicted that Wisconsin electricity needs, growing at
about 2 percent a year, would soon exceed capacity. Wisconsin Electric
Corp., the state's largest utility, estimated a shortfall of 4,000
megawatts by 2010. So in 1998, the Legislature passed an act that
streamlined the approval process for building merchant power plants,
basically issuing an invitation to independent power producers (IPPs)
to come to Wisconsin and build.
Results have been promising. "Right now we're looking at what
appears to be a generation building boom, at least if you look at
the proposed projects on the blueprints these days," said commissioner
Joe Metner of the PSC. "It seems like every couple of weeks some
new company announces its intention to pursue certification for
a plant somewhere in Wisconsin." As much as 6,000 megawatts, "depends
which week it is," has been proposed, according to Metner, representing
nearly half of Wisconsin's peak load.
Metner and others caution that not all proposed plants will actually
be built; nonetheless, he said, "I think the level of investment
that the IPPs want to put into our state is very positive ... a
good response to legalizing merchant plants and making their status
Local utilities have also built or proposed significant generating
capacity. MG&E just completed an 83-megawatt facility. In September
2000, Wisconsin Electric announced a $2 billion program to build
1,700 megawatts of new generation by 2010, and $1.3 billion to upgrade
To some degree, the Wisconsin "building boom" contradicts Minnesota
and Montana voices that say deregulation is a necessary incentive
to power plant builders: Wisconsin regulators have made no promises
about retail competition. But they have clarified merchant plant
ownership laws, sped up the permit process and, in October 1999,
loosened limitations on nonutility investments by electric utilities,
allowing regulated electric companies to broaden their business
Still, before Wisconsin Electric breaks ground on new power plants,
it wants a stronger quid pro quo from the state. "We don't propose
retail competition," said Bill John, a Wisconsin Electric spokesman.
But they do want a 20-year power purchase agreement with the PSC
and permission to move their generating assets, at book value, to
a "sister company." The company may not get everything it's asking
for, say observers, but they hold a strong position: Wisconsin wants
"This is going to negotiate out," predicted MG&E's Williamson.
"I think they'll get things like accelerated depreciation, perhaps
a little more aggressive leveraging ... and probably some long-term
assurances by the regulators. ... But with those tweaks, it's going
to be more of a price-control regime than any kind of deregulated
"The regulators can make deals with them, and say, if you build
this, then it's part of your obligation to serve, we'll guarantee
you'll get your money back," observed MIT's Joskow. "But if [regulators]
don't do that, why would [they build]? You have to have a clear
regulatory framework and it has to be one that satisfies the investment
More problematic, it seems, is the grid itself. While Minnesota has 18
major interstate transmission lines, and Illinois has 25 connections to
other states, Wisconsin currently has just four links to the outside electrical
world. "We have some unique problems in Wisconsin," said Jeff Butson,
PSC spokesman. "We're bordered on the north by Lake Superior, on the east
by Lake Michigan. We're sort of a bottleneck."
Moreover, in its most recent assessment of transmission capacity
in the Upper Midwest, including much of Wisconsin, MAPP said the
"tremendous increase" in wholesale market trading across transmission
lines originally built for local use "has stretched the existing
transmission system to its reliability limits."
Transmission capacity (measured as megawatt-miles of transmission
line per megawatts of summer peak demand) declined 14 percent from
1989 to 1998, according to national transmission expert Eric Hirst.
Hirst expects to see a further 17 percent capacity decline from
1998 to 2008, the second largest decline of the 10 regions that
comprise the U.S. power grid. In MAIN, the other power pool that
serves Wisconsin, capacity declined 16 percent from 1989 to 1998
and is projected to fall another 10 percent by 2008.
That paucity of transmission makes Wisconsin vulnerable not only
to lightning strikes, but to the exercise of market power-the ability
of one or two major suppliers to raise prices above competitive
levels. In a regulated environment, market leaders can't raise prices
and have no incentive to restrict supply. But if deregulation were
to take place, Wisconsin would be particularly susceptible to price
manipulation by just a few firms. Because power plants take so long
to build, competitors can't quickly enter the market. Because electricity
can't be stored cheaply, consumers can't wait until prices fall.
And because demand for electricity has "more the elasticity of a
piano wire than a garter belt," said MG&E's Williamson, suppliers
can pretty much set whatever price they want when competition doesn't
Aware of the potential for abuse in a deregulated future, the
PSC commissioned a study, delivered in November, which found that
Wisconsin Electric's control of roughly half of all generating capacity
in the Wisconsin-Upper Michigan System would allow it to exercise
substantial market power. Depending on the time of day and season,
prices could be raised between 15 percent and 75 percent above competitive
levels, said the study authors.
Expanding transmission would help reduce market power, but doing
so promises to be expensive and divisive. While Wisconsin Electric
has proposed $2.7 billion over the next decade to enhance its distribution
network—a plan welcomed by most—other utilities have proposed
transmission lines that have met strong resistance. The largest
and most controversial is a 250-mile line between Duluth and Wausau,
the Arrowhead-Weston Project, proposed last year by Wisconsin Public
Service Corp. and Minnesota Power/Allete.
Engineers proposed the line after studying several different options
for increasing transmission reliability, in part because it offers
geographic diversity: A local storm threatening the King-Eau Claire
line would likely not affect a line in northern Minnesota and Wisconsin.
Large industries, including paper companies in northern Wisconsin,
as well as retail businesses belonging to the Wisconsin Merchants
Federation support the proposal, viewing it as critical to their
But in vocal opposition stand most of the county councils in areas
through which the power line would pass and many local citizens
who fear they'd lose their pastoral paradise to the hum of high
voltage. Property owners and environmentalists, organized in a group
called Save Our Unique Lands (SOUL), have launched a Web site, written
hundreds of letters and organized protests to make their views known.
"It's one of the most controversial cases in our history," said
PSC spokesman Butson. "They've come down in busloads to protest
at the commission."
The critics are not convinced that the Arrowhead line is essential
to Wisconsin's electrical well-being. Tom Kreager, SOUL's president,
argues that upgrades to existing transmission lines, demand-side
management and distributed generation technology would better address
Wisconsin's reliability issues. The real motive for the line, he
suggests, "is moving bulk quantities of electricity across the state"
to export power to higher-priced markets: Detroit, Chicago. "Wherever
the highest bidder is."
The debate will not be resolved until spring 2001 at the earliest,
and if approved, construction would take several more years.
Arrowhead aside, the future of Wisconsin's transmission network
remains unclear. In line with federal policies encouraging integration
of regional networks, the Wisconsin Legislature mandated that the
state's largest utilities transfer control of their transmission
assets to a Wisconsin nonprofit entity that would, in turn, join
a regional transmission organization. But the regional organization,
the Midwest Independent System Operator (MISO), appears to be very
fragile. Several members are pulling out, others have threatened
to, and observers are pessimistic. "My prediction is that MISO is
going to collapse," said Jaskow. "I can't imagine it's going to
Whatever MISO's fate may be, the development of a robust integrated
transmission network in the Midwest will require a structure that
supports the operational requirements and financial interests of
the participating utilities. It isn't likely to happen soon.
While pricing, generation and transmission are arguably the most critical
issues involved in deregulating electricity, a host of other problems
must be resolved as discussions move forward. Some will be addressed at
the state level, but many think the field of debate is moving to the federal
level. The debatable issues are many.
Electrical service to rural residents and low-income customers
will have to be maintained, and the higher costs paid for. Differential
tax policies for electrical cooperatives, municipal utilities and
investor-owned utilities must be addressed. Demand-side management—the
technology and markets that create awareness and response to real-time
fluctuations in electricity prices—requires development. Government
and industry must decide whether it continues to make sense for
utilities to run customer conservation programs, given the inherent
conflict of interest with their primary goal of selling energy.
The trade-off between our increasing demand for electric power and
the environmental costs of producing that power will remain a point
While these and other questions remain, it appears that for now,
the push toward retail competition has slowed. Some observers aren't
sure that's such a bad thing, at least in low-price states like
those of the Ninth District; given the costs involved, the net benefits
of full deregulation may be less than the Big Bang first promised.
"In the Midwest, where regulation has been reasonably benign, and
companies have done a pretty good job building cheap coal plants
and operating them, I don't think the long-term benefits are huge,"
concluded Jaskow, noting that the primary benefit would be encouraging
innovative generation technologies. "I'm still in favor of going
forward with this, but you have to be cognizant of keeping the short-run
In the states that make up the Ninth District, at least, the power
struggle may eventually result in reasonable compromises between
regulatory and market incentives, what one restructuring analyst
calls a "hybrid from hell." Until those deals are struck, keep your