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Consolidation: Key to the Future?

Why integration may win out in the long run.

Fortnightly Magazine - August 2005

of central and coordinated control of many functions. It seems almost axiomatic that electrical systems are at their best when they are interconnected and centrally coordinated and controlled.

A defense of integration, of course, runs at least superficially afoul of much current conventional wisdom. With the retreat of economies of scale as a guiding philosophy in the generation and distribution of electricity, it has become fashionable (and perhaps wise) to think in terms of "smaller is better." Thus, distributed generation, with relatively small generators deployed near loads, is being promoted as a substitute for complete reliance on a central generator. Although there are technological reasons why distributed generation might now be viable, its use represents a reversal of one of the earliest developments in the growth of the industry-central station generation. Central station power, early advocated by Edison and Insull, became the industry norm, and recent indications of retreat from it reflect a developing preference for smaller and more decentralized sources of power.

Amory Lovins was an early advocate of avoiding huge generators out of scale in relation to loads. Although his views never quite made it to the mainstream, they were influential in reinforcing the trend away from the size concepts associated with economies of scale-illustrated in recent years by the widespread advocacy of natural-gas combustion turbines as a source of generation. But all of these tendencies relate to the size of generators rather than to the scope of the system of which they are a part. The possible benefits of integration, as discussed in this article, involve the scope and coverage and coordinated control of an electric power system, and bear no necessary relation to the scale of the equipment deployed in the system. Hence, "small is better" thinking of the sort we have mentioned is not necessarily relevant.

Enduring Appeal

We are left with the question of what sort of future there will be for the integration of interconnected systems, which has been an appealing objective in the past, as illustrated by PUHCA. As this article suggests, the ancient and enduring appeal of integration as a governing principle, even overshadowing competition as the dominant theme, may take shape in the future, as it once did with the railroads. This tendency would reflect long-held intuitions about the way to achieve efficiency and reliability.

Admittedly, current thinking, although it does not affirmatively reject integration as a goal, primarily favors competition as the process crucial to efficiency. But whether competition actually will yield efficiency is more a matter of supposal than of empirical demonstration. Integration, with its long and important history of usefulness at various stages of electric power development, remains a powerful contender to achieve dominance now and in the future.



  1. See Union Pacific and Southern Pacific Merger Case, Surface Transportation Board Decision No. 44, 1996 WL 467636 (I.C.C.) at 205, *87 (August 12, 1996). (Separate opinion of Member Owen at 489, *213).