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Deregulation, Phase II

Recent electricity pricing argues for faster, more extensive deregulation.

Fortnightly Magazine - November 2007

electric rate increases as new transmission and generation investments are added to utilities’ rate base. Additionally, the U.S. grid has tapped out its ability to increase the uptime for coal and nuclear plants. As a result, most growth in future electricity consumption will be served by new, expensive coal or nuclear generation—or else increased operation of the existing expensive gas fleet.

Concurrent with the increase in coal and nuclear load factors has been a corresponding reduction in the load factor of the gas fleet, from 20 percent to 30 percent to less than 15 percent. Thus, while most added power capacity has been gas-fired, much of the new generation on a gigawatt-hour basis has been from coal and nuclear plants. Gas-fired plants could be run much harder—and new ones could be built—but only at the expense of much higher electric rates given their higher fuel costs.

Meanwhile, the urgent need to reduce carbon emissions seems certain to place a huge added cost on all centrally generated power, due to its inherently limited energy efficiency. This is not the time to blame deregulation, especially when it has been so successful at blunting the failure of the regulated states to keep their power costs down since 1996. Instead, the time has come to stop looking for scapegoats, and to start applying the proven power of competitive markets to ensure future reductions in electricity costs.

 

Endnotes:

1. Kahn, Alfred E., Lessons from Deregulation: Telecommunications and Airlines After the Crunch, AEI-Brookings Joint Center for Regulatory Studies, Washington D.C., 2004.

2. As of 2004, the U.S. Combined Heat and Power Association had identified 80,905 MW of combined heat and power plants in the United States, spread across 2,845 local installations. Of this total, just 2,200 MW (75 installations) were owned by regulated utilities.

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