Imagine if the airlines had followed a utility model when they deregulated back in 1978.You and five other planeloads show up at the airport to catch a flight to Chicago. Every few hours the airport operator holds an auction for the next hour's Chicago flights. Delta offers two new 767's at $200 per ticket. U.S. Air bids one 737 at $300. American has six
DC-9's and bids each one at $1,000 per head. When the auction ends, Delta and U.S. Air fill their planes. American fills two of its six flights. But despite the broad range of bids, you and everyone else pays $1,000 per ticket.
Welcome to electric utility "deregulation," as some envision it. It is known as "PoolCo."
PoolCo has already been adopted in the United Kingdom. It was recently endorsed by a majority decision of the California Public Utility Commission (CPUC), though Commissioner Jessie Knight recommended an alternative direct-access plan in his dissenting opinion.1 If PoolCo is adopted for the electric utility industry, consumers will not enjoy the benefits achieved through deregulation in the airline, telephone, and natural gas industries, because the power supply remains in the monopolists' hands. Ratepayers still purchase from a single monopolist distributor. PoolCo may mean deregulation, but not true competition.
Under PoolCo, utilities ignore traditional service areas and bid resources hourly to supply all the needs of the region or state. The same utilities then purchase power at the highest accepted bid price and distribute it to consumers. In PoolCo theory, the winning bid marks the marginal cost (essentially fuel cost only) of the least efficient resource needed at the time to meet demand.