City of Oak Ridge Electric Department

This article was published in an opinion piece in "The Oak Ridger" March 4, 2001.  I thought you might be interested in my viewpoints as publicly expressed. If you have questions, please let me know.

Jack Suggs

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My Opinion: Jack L. Suggs

The Electricity Crises: Safe for a While

The electricity crises in California--demonstrated by rolling blackouts and recently proposed 46% increases in electric costs--have justifiably caused worry across the country. Frequently, I am asked if such a situation could occur here in the Tennessee Valley. My opinion is “probably not for now.”

Despite the horrific experiences that have been a direct result of electric deregulation in the West and the lackluster results of deregulation in other areas, the movement to continue to deregulate electric utilities across the country is not dead. As of this writing, bills have been introduced at the Federal level designed in large measure to force states to deregulate electricity. Further complicating issues, Kentucky senators have introduced bills aimed at preventing TVA from constructing generation needed to meet the needs of its customers--attempting to force TVA’s customers onto the open market and higher rates. The chances of these bills "going anywhere" this year is debatable.

There are several reasons why the electric market was regulated in the first place. These reasons are still valid today. Consider that in a regulated electric market, the utility has financial stability and is able to invest in high efficiency generation and transmission facilities knowing that these high-cost/ low-return investments will be protected. Without a dependable market, the concept of investing huge amounts of money and years of construction time to produce electricity efficiently at $15 per MWh becomes unworkable, when for one-third the investment cost and a few months time, electricity can be produced for $40 per MWh with a natural gas plant. The extra cost of generating power at $40 per MWh is minor when one realizes that in California’s deregulated market wholesale power was sold for $522 per MWh this past year---and prices are likely only to go up.

In the early days of electric deregulation, proponents claimed that the small business and residential customer would benefit from this movement. Instead, these markets have provided a way for large industrial companies, including some electric generators, to flourish at the expense of the public and their own employees. Adding insult to injury, the very marketers who purchased millions of dollars in advertisement to convince the public that deregulation would save the average user money, withdrew from the residential market after the legislation was passed, stating the residential market simply wasn’t profitable. As has been said repeatedly, “in a competitive environment, the big dog eats first.”

In addition to higher cost and electrical shortages, deregulation has caused other power woes in the West. The most evident have been huge power outages affecting the entire coast. Proponents of deregulation once claimed that power reliability would not be sacrificed in a deregulated market once the bugs were worked out. One should consider, however, that these markets do not support investment in needed redundancies. Backup sources and feeds, because they are needed so rarely, by definition, don’t contribute to the bottom line and are economically not feasible in a competitive market. The result has been painfully clear over the last few years as the loss of a single facility--frequently a transmission line--has shut down entire regions of the nation.

Another side effect has been contributions to the increase in natural gas prices. The natural gas fuel used by the “cheap to build, expensive to operate” generation plants is subject to higher demand, and since that market was previously “deregulated,” gas costs have skyrocketed for the average user.

So, will this happen here? Deregulation has introduced uncertainty in the region which, when combined with debt concerns, has apparently discouraged investment by TVA in needed generation facilities. The result has been reliance on the open market to support industrial customers, which--except for dramatic rate support by TVA--would have been extremely costly to those customers. If deregulation pressure continues, or if the US Congress exercises control over TVA to stop needed generation expansion, this area could well be subject to much higher rates and California-like crises. The good news, however, is that such efforts have not yet been successful. Even if passed today, the Tennessee Valley would have a several years to brace itself for the effects.

Hopefully the public outcry over the disaster in California and the honest and good work of our legislators will combine to slow the tide of deregulation until its true benefits and costs can be carefully weighed. Then, if the nation is lucky, these cost and benefits will be used to make decisions to the benefits of the entire country.

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