Eugene P. Coyle works as an energy analyst for Toward Utility Rate Normalization (TURN), a consumer advocacy group in California that claims 30,000 members.
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The January mini-forum failed to discuss a key underlying assumption made by PoolCo proponents. The assumption is that price competition will really exist in tomorrow's wholesale electric market.
The PoolCo vision calls for a neutral agency that will receive bids from multiple independent power producers (IPPs) and investor-owned electric utilities (IOUs) to supply energy. The proponents of PoolCo spin a tale of a highly competitive world, with the bidders shaving their prices very close to their costs. Bids must be as low as costs, it is claimed, because a competitor will be bidding low as well. Low-cost producers will succeed, and have their plants running at capacity. The high-cost folks will not win many, or perhaps any, bids. Technology will drive costs lower over time, with new, clever entrants taking their places in the dispatch order, and forcing expensive and dirty plants to turn to rust. This, we are told, is how "competition" will lower electricity costs for all consumers.
Unfortunately, however, the market really doesn't control prices in the U.S. economy. I will focus on two ways in which failure occurs.
The Cartel Problem
How do you tell the difference between a pool and a cartel?