A no-holds-barred interview with the electric industry’s chief architect of wholesale electric market design.
Give the British credit, but what about us?
Fans of Sherlock Holmes fans will recall the story "The Silver Blaze," and the "curious incident" of the dog that did not bark in the night. That story came to mind when I read Carl J. Levesque's excellent article, "On the Origin of the Markets: Electricity Evolution in the U. K." (, July 15, 2001, p. 48).
In the article, the consultants from the U. K. talk about the restructuring as evolutionary, not "in terms of getting it right the first time." Well, yes, the British did not get it right the first time. But the article neglected to mention how getting it wrong can produce disastrous consequences, with the public footing the bill.
In the U.K. the Thatcher government ignored warnings about too few competitors, and about not dealing with the coal industry simultaneously with the electric. As a result, the British consumer, I suspect, ended up paying too much for electricity. But the government still managed to collect large sums on the sale of the electric assets, and British consumers owned the stocks that went up more because electricity prices were higher than they needed to be. Overall, I think that most people would give the British credit for pioneering, and would rate the end results (at the consumer level) as reasonably good but not spectacular. What the consumers may have lost through higher electricity prices they might have recouped through capital gains or lower taxes.
Here in America, local consumers do not necessarily own stock in the utility - and certainly the government doesn't - so getting it wrong the first time can extract large sums of money from the pockets of startled consumers (and even investors). Botched restructuring can cost the public millions or even billions of dollars. I don't think that we can afford consultants with such a relaxed and cavalier attitude. For sure I wouldn't hire one as my surgeon.
Maybe we should wean the advice-giving experts off their cost-of-service model, too, and pay them only if their advice hits the target. That would align the interests of advisers and the "advisees."
It would certainly make me happy as a consumer, knowing that part of my higher-than-necessary electric bill wasn't going to the people who made it possible.
New York, N.Y.
Carl Levesque's article () offers a rarely verbalized but honest evaluation of the deregulation process, both in the U.S. and abroad. Deregulation dynamics are indeed complex. The unique considerations of a given locality convolute the logic even further. At best, all deregulation efforts must necessarily produce a transient period with unanticipated dynamics - previously unacknowledged or unknown - that are only later recognized, accommodated, and corrected.
History shows that markets do produce benefits to customers after the initial tribulations. I think most observers and consumers would agree that has happened in the U.S. for both oil and natural gas. And while electric prices in the U.K. might be seen as higher than an idealized "efficient" market might otherwise dictate, customers are now