Redundant Restructuring: How the Dual-Retailer Model Makes Electric Markets Too Complex

Deck: 
 
Fortnightly Magazine - July 1 2000
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A call for utilities to leave the marketing business.

Many of us on the front lines can identify with Stanley Klein's observation that, in terms of its implementation, the restructuring of the electric power industry is "fundamentally an information technology event."1

Consider all the collaborative groups working on EDI standardization. Building flexible billing systems and capabilities for electronic data interchange makes electric restructuring an expensive and sometimes convoluted task. Think of how much cost this process adds to the final product. All things equal, you wouldn't want to impose that cost on any more firms than is absolutely necessary. But as I contend here, we may be doing just that.

The potential for savings in the final price remains the primary focus for those debating the benefits of competition. If deregulation doesn't increase consumer surplus, why go through the trouble? However, under the pressure to demonstrate immediate price reductions, firms often overlook operational efficiency. To generate consumer surplus, industry restructuring must encourage all firms, both regulated and competitive, to become more efficient in the aggregate.

Are we there yet? Anyone who has mapped an EDI transaction or modeled a new "competitive" business process might well wonder when we might arrive.

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