Wait for the "second wave," when new products help suppliers escape the trench warfare of pricing.
Unbundling Electric Discos: Overseas and at Home
As the U.S. electric power industry unbundles, the industry and its regulators grapple with two big questions concerning the degree to which distribution services should be unbundled. First, what groups of distribution activities can separate suppliers provide? Second, which of these groups of activities should be open to competition?
Looking at the unbundling experiences of Argentina, Australia, Canada, Chile, Norway and the United Kingdom sheds light on these questions. The distribution unbundling of the U.S. gas and telecommunications industries provides additional insights.
So, what can the U.S. electric power industry learn from these experiences? First, distribution can be unbundled (em for a price. Distribution unbundling raises questions of coordination and responsibility. Who's responsible when the lights go out? International experience shows that incentives affect market participants' willingness to invest in new distribution facilities. Finally, unbundling benefits consumers through new and better services; but these benefits usually mean higher rates and increased complexity.
International Power Experiences
Table 1 summarizes some key characteristics of distribution service unbundling in the six nations in this survey. The table shows at least two striking facts. First, half of the respondents have not unbundled distribution services (em and do not intend to do so. Second, those nations that have unbundled services, with the exception of Chile, have done so only very recently. (The Chilean exception is not very important, however, as its unbundling has been very limited.) The second striking fact is that, even in the nations that have unbundled distribution, those services account for only a small share of distribution costs.
Survey respondents are reluctant to unbundle distribution because they have found it difficult to identify sensible schemes for separating services. They fear it would impose a huge cost on consumers. Most respondents believe consumers would benefit marginally from unbundling.
The Norwegian respondents suggest that distribution unbundling is occurring for ideological, not economic reasons. Indeed, the Australian and U.K. respondents indicate they're unbundling primarily because of government policies to promote competition; they only vaguely believe that competition will benefit consumers.
The Australian and U.K. respondents report that technological problems do not pose insurmountable barriers to distribution unbundling, but that they do add to cost and time requirements. They are concerned with metering, billing and information-handling technologies. They indicate that introduction of competition is easier if it is staged to allow sufficient time to implement the new information systems and infrastructure necessary for handling competitive market transactions.
The survey respondents recognize a slew of potentially unbundled distribution services. These are listed in Table 2, which divides them into (a) facilities services, (b) revenue cycle services and (c) energy services. Facilities services are provided by equipment throughout the distribution network, but sometimes are unbundled when provided by equipment on or near a customer's site. Connections and line-drops services connect the customer's load to the power system either through a standard single connection path or through an enhanced double path that reduces chances of customer outage. Transformers, power factor corrections and premium power quality services control the quality of the power received by the customer and also control the effects