[BETA] Fortnightly

Professor Peter Navarro, who teaches economics and public policy at the University of California at Irvine, writes in the Harvard Business Review (January-February 1996) that "[t]he deregulation of the electric utility industry represents an important opportunity to enhance the country's competitiveness and improve the standard of living for its citizens. ... It is the time to move boldly forward to forge an open market, in which competition and choice are the rules and not the exceptions." He argues that a "coordinated federal policy" is needed to "radically restructure" the electric industry. According to Professor Navarro, "a leaner industry will enhance U.S. competitiveness and improve the standard of living for everyone [emphasis added]."

Professor Navarro is a distinguished economist. Not surprisingly, he espouses competition. Also not surprising, he favors federal deregulation of the electric industry, given that he lives in California (em where electric rates are roughly 50 percent above the national average.

But I don't live in California. I live in Virginia, and our residential electric rates in 1995 for investor-owned utilities (IOUs) were 11.5 percent below the national average. Our commercial electric rates were 23 percent below the national average. And our industrial electric rates were 17 percent below the national average. Regionally, there is also a significant difference in electric rates. For example, Virginia industrial electric rates were 39 percent below the mid-Atlantic regional average and 6 percent below the south-Atlantic regional average.

What would happen to electric rates and reliability in states like Virginia? It doesn't take an economist to figure out the answer: Price equilibrium will result for the country. Certain regions will win; other regions will lose. California would win; Virginia would lose.

Professor Navarro's deregulation scheme doesn't address short-term regional impacts, particularly in Virginia. He is convinced that deregulation will benefit us nationally. And he's probably right in the long run. But long-run benefits don't complement Virginia's short-run plans for increased economic development. We do not need (em and, indeed, do not want (em national equilibrium in electric prices if it increases our electric rates, stymies economic development, and reduces our standard of living.

Professor Navarro thinks long run, but we live in the short run. In the last 12 months, Virginia has attracted a $1.5-billion Siemens/Motorola manufacturing facility, a $1.2-billion IBM/Toshiba manufacturing facility, a $3-billion Motorola manufacturing facility, and other new businesses. As our governor is fond of saying, "Virginia is open for business." But he isn't attracting new businesses with a promise of higher electric prices in the future. Quite the contrary. These new businesses expect to pay lower electric prices tomorrow (em an expectation that does not assume a "coordinated federal policy" of "radical restructuring."

Our major IOUs include Appalachian Power Co. (APCo) and Virginia Electric and Power Co. (Virginia Power). APCo's and Virginia Power's retail rates compare favorably to retail rates nationally. APCo and Virginia Power do not need a "coordinated federal policy" to provide Virginia with low-cost, reliable electric service. They know they have to produce low-cost electricity to attract and keep business customers; they know they have to provide business