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A decade of restructuring has not affected the financial integrity of the average regulated utility.
Fortnightly Magazine - November 15 2003

process, or roughly 2.5 percent of the electric bills paid in the period.

Some of the price reductions, however, derive from cost deferrals and securitization schemes that will require price increases in the future. Furthermore, depressed wholesale power prices now reflect a glut in supply that most observers expect to diminish over time. Thus, one can have little confidence about both the permanence of the savings and the magnitude. The calculations, furthermore, do not net out higher transaction costs or losses suffered because of lower reliability, if any, incurred by consumers on top of the electric bill.

Admittedly, the calculations suffer a bias. They examine numbers for the nation, rather than for the half of the nation that has attempted to restructure. Presumably, however, consumers in regulated states also could reap the benefits of a more competitive wholesale market and a more open transmission network. However, even if one assumes that only consumers in the restructured states received any benefits, those benefits still appear marginal relative to the accompanying turmoil.

So far, it looks as if the restructuring process has produced minimal benefits to consumers, and the financial losses incurred by investors in power production and marketing probably exceed the benefits to consumers. Electric utilities, on average, appear to have gone through the decade almost unscathed, despite a few bankruptcies or near misses. Utility investors cannot say the same, largely because utility affiliates made big bets in the unregulated sector-and lost.

Calculating capitalists and proponents of markets should not care if some people made bad investments. The power plants those people built won't go away, and consumers can benefit when producers create supply gluts. The problem, however, is that policy-makers put their bets on the unregulated entities to expand the supply sector. The unregulated companies do not have the resources and might encounter difficulty raising the capital needed. The regulated companies have the resources and the ability to attract capital. That combination of factors does not add up to a viable, competitive market.

Perhaps the time has come to call for a recess in restructuring, given the paucity of discernable benefits to date, in order to formulate the path forward. Perhaps the Northeast blackout of 2003, which could have happened in the most Stalinist of controlled environments, will provide the excuse for the recess.


  1. James Penrose, "Consolidated Ratings Methodology," Standard & Poor's, Oct. 19, 1999.
  2. Leonard S. Hyman, Howard S. Gorman, Richard J. Rudden, "Ring-fencing the Regulated Utility," R.J. Rudden Associates Inc., August 2003.
  3. 320 US 591.
  4. Leonard S. Hyman, "The Return of Plain Vanilla," , January/February 2003, pp. 32-40.
  5. Ibid.
  6. Leonard S. Hyman, "Investing in the 'Plain Vanilla' Utility," , vol. 24, No. 1, 2003, pp. 1-32.
  7. EEI, price of electricity and fuel.


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