Unlike the majority of performance-based regulation plans, alternative design paradigms require less data, by instead allowing firms to reveal performance potential. In an asymmetric environment,...
What's in a Name?
Charles Studness's article "CPUC Chooses Reregulation over Deregulation" (Financial News, July 15, 1995) reminds me of Humpty Dumpty's scornful remark in Lewis Carroll's Through the Looking Glass: "When I use a word, it means what I choose it to mean (em nothing more nor less."
When Studness discusses "deregulation," it is clearly what he chooses it to mean (em not what the California Public Utilities Commission (CPUC) proposes in its May 24 majority decision on deregulating the electric utility industry. While Studness's article abounds in inaccuracies, I will limit myself to three of the most egregious.
First, Studness states that the CPUC's proposed decision "retreats from the free market," and that it "amounts to a tacit admission that the CPUC cannot accomplish the task of implementing competition." This is simply not so.
The cornerstone of the CPUC's majority decision is a free market. A competitive "pool," or spot market, is based on unbridled competition among generators to meet the demand for electricity. As a result of this competition, all customers receive timely, accurate price information to negotiate any deal with any supplier. Far from shrinking from the responsibility of implementing a competitive electricity market, the CPUC has taken a bold step toward forcing full and complete competition while ensuring all customers fair treatment in an efficient and reliable electric system in the future.
The second major inaccuracy is Studness's claim that the CPUC's decision shifts the focus from consumer choice and competitive market forces to a government-sponsored spot market. It just
isn't so. The majority decision
emphasizes the need for both a spot market and a contracts market. By giving all consumers access to either market, the CPUC's decision maximizes consumer choice and competition.
The third most glaring error is Studness's assertion that the CPUC's decision "would leave all electric investment at the mercy of regulation." Again, nothing could be farther from the truth. It is open competition, not regulation, that will determine the profitability of generators.
In the majority decision, all generation is left to a competitive market. Unlike the CPUC's April 1994 "Blue Book" proposal, which regulated utility service to consumers who didn't enter the contracts market, there are no generation decisions made by regulators.
The CPUC's decision would create a deregulated, competitive electricity market with opportunities for all (em not a reregulated market favoring a few. Unfortunately, Studness engaged in rhetoric, not reflection, and produced an analysis of industry reform that is as flawed as the famous egg who fell off the wall.
Steven D. Davis
Director, Regulatory Affairs
San Diego Gas & Electric Co.
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