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Ten ways to fix the mess in electric restructuring.
Fortnightly Magazine - November 1 2000

an imperfect operation.

5. Force the Grid Owners Out of Generation. Though this principle is broadly accepted, some players continue to fight a rearguard action to remain in both generation and transmission.

Regulations for open-access transmission originated at the Federal Energy Regulatory Commission. The FERC wanted to prevent utilities from dominating both generation and the delivery of power. Obviously, a company that controls transmission can and does use that control to benefit its own generating resources.

Now, several large utilities are proposing to create regional transmission organizations (RTOs) that they will own and control at the same time that they supply power across the grid. RTOs are an excellent and timely initiative by FERC, but they would be almost useless if the commission were to allow rebundling.

The purpose of the entire restructuring exercise is to increase customer choice; the purpose of controlling both generation and transmission is to limit customer choice. Not only does control permit dominance, it allows the bundled entity to subsidize generation costs in a way that is not possible for other market players.

6. Protect and Educate Consumers. Let's face it: The states have done a poor job of educating consumers and protecting them from the scams and abuses—such as bait-and-switch and false claims—that tend to crop up in emerging markets.

Consumers would be less likely to be disappointed if legislators and regulators would just do a better job of explaining the changes. Far too often, state regulators or legislators promise that prices will fall right away. Such predictions are often premature or just plain wrong.

And all those licensing requirements that govern the suppliers will not be enough to protect consumers from harm. Suppliers want to keep their offers confidential for competitive reasons, which is understandable, but the virtually complete cover they get allows them to mislead customers with impunity. To believe that larger customers are knowledgeable enough about this new market to protect themselves is a false assumption.

The states should institute and enforce real trade rules and be much more vigilant about actual complaints of market power. The state attorneys general and the utility regulators have been slow to step up to this challenge. Without such protection, customers are signing contracts they barely understand, based on assurances that suppliers cannot keep.

7. Cut the Social Mandates. State governments traditionally have forced utilities to clutter their bills with charges to pay for low-income programs and energy conservation schemes.

This manipulation of what is supposed to be an open market, in which electricity prices and terms are to be set to compete with other resources, serves only to falsify. At a time when we are struggling to get the rules right, government undermines the market.

Of course, it has never been equitable to impose mandated costs and conditions on electric power when they are not imposed on other resources such as oil. But with legislative action to allow retail competition, states seem to have seized the opportunity to add even more requirements, apparently believing that competition will be so robust that the market will bear some