For the past decade, the renewable energy industry and various branches of the federal government have engaged in an ungainly, enormously unproductive two-step on production tax credits (PTC) for...
Ten ways to fix the mess in electric restructuring.
Crisis in California! Double-digit increases in Maine's default service rate! Wholesale prices up to $6,000 per megawatt-hour! Independent system operators struggling to get the market to work! In the background, we hear strains of that old Gershwin tune: "Let's call the whole thing off."
Electric restructuring is struggling. Many would write it off as a failure. But we cannot turn back. Mergers are a fact. Power plants have been sold. To be sure, some regions have done little as of yet, but they will be forced to do so eventually. We need to step back, learn the lessons from the first phase of restructuring, and make it work.
Here are the most important lessons we've learned since passage of the Energy Policy Act eight years ago.
1. Accept the High Price. Too frequently, politicians insist that restructuring should produce savings right away. But that's not our economic system. Instead, it should be enough to ask only that competition will dictate the price of electricity, just like for any other product. That price, whatever it is, will certainly prove more efficient than any "just and reasonable rate" that regulators may devise.
As California has shown, you cannot expect restructuring to work miracles when demand outstrips supply. Instead, trust competition to send a price signal that will encourage power producers to build more generationthe kind of signal that, if sent earlier, could have made a real difference by now.
Also, accept the fact that competition at first will encourage consumption, leaving no incentive for conservation other than price. After all, higher prices are the best way to trim demand when supplies are limited. We should live with the system we have created, instead of complaining when it works.
In Maine, no amount of competition could stave off the effects of rising oil prices. When crude goes from $12 a barrel to $35, the price of power must surely follow. Yet some politicians make lower electric rates a condition for restructuring. In so doing, they succeed only in delaying the inevitable. Instead, they should take their satisfaction in knowing that customers no longer would suffer the risk of bad investments by generators. Imposing that risk on suppliers should mark a major step forward.
Of course, it is only proper for federal and state regulators to have concerns about the transmission grid and its reliability. They want the industry to build new transmission, but fail to acknowledge the heavy burden imposed by environmental rules. The ultimate regulators of the electric market are state siting authorities. They should change the rules to make it easier to build, or else let the prices rise to reflect the difficulty of siting and the resulting scarcity of transmission, and stop complaining.
2. But Phase It In. Don't expect to do it all right away. In treating electricity like the telephone, regulators have tried to open the power market to all customers simultaneously, but that strategy has only led to chaos and mass disappointment. It has frightened away some other states from