An interview with Ralph Masiello
and Sue Scott of ABB
The big, traditional projects in automated meter reading have really stalled, because utilities are no longer assured of a...
is better" coal and nuclear plants were the norm; they are now a big part of the problem. In an open market, technology development and deployment will be refocused to new investments: technology to de-bottleneck the grid where existing resources are underutilized or simply unavailable to outside markets; more flexible and efficient plant and equipment; smaller, more easily financed, and less risky generation. Development and deployment of new technology will no longer lie hostage to the budgets or regulatory agenda of the utilities.
All of this change is leading to better choices for consumers. Enron's electricity trading group has observed, and participated in, an enormous price decline in those pockets of the market where competition is allowed to operate. In the last 12 months, prices in Western markets have fallen 25 to 35 percent for comparable transaction terms. Even after adjusting for the effects of surplus hydro power, we estimate the decline at about 15 percent. In Eastern markets, $40 per megawatt-hour (Mwh) purchased power is replacing $60/ Mwh generation in seasons of rising temperatures. Perhaps most dramatic, however, are price declines in the nascent forward market, where purchased-power transactions are winning requests for proposals over new generation costing perhaps 40 percent more. Increasing diversity in nonprice terms is also observable. Currently, these products of competition are confined to a narrow segment of the wholesale market (em an even smaller slice of the overall power market. Whether these benefits expand beyond these narrow confines depends on how wisely and expeditiously the
transition to competition is undertaken.
The Importance of the Transition
Whether electric industry restructuring proves positive or negative for the gas industry will depend on how the transition breaks. The job of deregulation is far from over. Utilities are not sitting on their hands while beloved protections fall away.
The gas industry would benefit from a swift and complete transition to competition. In such an environment, new generation would likely be gas-fired, nuclear assets would be retired, opportunities would flourish for capital reconfiguration, and retail markets would find a level playing field. But a slow and compromised transition would have the opposite effect. Here's how.
While competition is beginning to take hold in wholesale markets, retail markets are immune so far. Competition in such markets is coming but not here yet. While waiting for this eventuality, utilities have filed for a proliferation of "special deals" to insulate their retail markets. "Cogen deferral" rates shift costs away from large customers who might otherwise choose a gas-fired cogeneration facility. (As shown in Figure 2, industrial rates in many areas of the country are much higher than the cost of new gas-fired generation.) These customers either disproportionately benefit from utility cost-cutting and shareholder absorption, or the utilities shift costs to other ratepayers.
Many utilities are working on "special deals" for their generation assets as well. Deals have been made for the recovery of costs associated with nuclear assets. Proposed pricing and rate systems would allow competition on a marginal-cost basis rather than on fully allocated cost. (The difference is recovered on utility assets, but