a deregulated electric industry will have a negative impact on the cost of electricity and its reliability.
We know that a deregulated or restructured electric industry will increase demand for transmission capacity and reliability. The North American Electric Reliability Council's (NERC) General Counsel, David Cook, testified before the Senate Governmental Affairs Committee that deregulation already has resulted in a large increase in the number of transactions on the electricity grid.
Former cooperating companies are now competitors and the responsibility for reliability is divided, resulting in a grid that is stressed, congested, and open to the abuse of reliability rules. The summer of 2000 evidenced a number of instances where operators allowed facilities to remain loaded above their known security limits for extended periods of time, which placed the grid at prolonged risk of major failure. Current efforts to form interstate Regional Transmission System Operators, alleviate transmission constraints and load pockets, and prevent the potential exercise of market power in states actively engaged in deregulation, make the dialogue concerning the level of reliability and who should pay essential to state and federal regulators.
Customers in California currently are paying a tiered rate for power based on usage. If regulators recommend upgrading the nation's transmission and distribution systems to a higher reliability standard, should structuring a tiered tariff be considered? Should commercial and industrial customers that require and demand a higher level of system reliability pay a higher price for that reliability? A motto that we believe has worked well for all customers in any deregulation effort is, "Cost-causers should pay the costs they cause."
1 National Energy Policy Development Group, "Reliable, Affordable, and Environmentally Sound Energy for America's Future," U.S. Government Printing Office, May 2001.
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