New Study Stresses Electric Competition Is Necessary To Meet Nation's Energy Needs

A report recently issued by the Northbridge Group supports the Pennsylvanians for Reliable Power's conviction that full implementation of electric competition is needed to meet Pennsylvania's energy needs.

 

The report examines energy trends and policy changes from the 1970s and 1980s. Back then, when we faced the same challenges we're facing today-high fuel costs, changes in customer demand, environmental concerns, etc.-policymakers responded with regulatory action.

 

As a result, says the report, consumers and the industry saw "a massive overbuild of baseload capacity, skyrocketing rates. and huge cost overruns paid by customers." These mistakes and more cost about $200 billion or more in today's dollars and caused supply and rate problems that were felt for decades afterward, the report estimates.

 

Looking at the regulatory responses of the 1970s and 1980s, the report notes four flaws of regulation: 1- A lack of clear price signals, which creates a slow regulatory response, in turn causing generators to create much more or less electricity than needed; 2- Perverse capital incentives, which cause utilities and generators to fund unnecessary projects, including new plants; 3- Improper allocation of risks, which cause many cases of customer-funded commitments that turn out to be uneconomic; and 4- Tendency for regulatory "fixes" to overcompensate, in which attempted problem fixes actually turn out to increase costs and inefficiencies.

 

Comparing electric regulation to the competitive electricity market, the report concludes that competition is the best way to meet the nation's, and therefore Pennsylvania's, electricity needs.

 

"I have spoken many times about the need for Pennsylvania, and the U.S., to take steps to ensure that as our need for electricity grows we continue to expand electric generation and continue to strengthen the reliability of our electric grid," says John Quain, former Public Utility Commission chairman and spokesperson for Pennsylvanians for Reliable Power.

 

"The recent report by the Northbridge Group further proves that need. We cannot retreat from fully implementing electric competition that was started in 1996," continues Quain.

 

In addition to the pitfalls of regulation noted in the Northbridge report, several benefits of competition are especially noted by Pennsylvanians for Reliable Power. Competition has forced electric generating plants to become more efficient by maximizing output and capacity. When competition was initiated, our nation's electric generating plants operated at about 70 percent efficiency. Today, with competition, the plants have a 90 percent generating efficiency.

 

Pennsylvanians, like all Americans, are using more electricity. Competition will also allow electric generators to keep up with demand by increasing capacity as they see fit. Increasing home sizes, our growing population, and new technologies such as HDTV (which uses four times as much electricity as conventional TVs), plug-in electric cars, cell phones, and computers have created a demand for electricity that is expected to rise by 40 percent by the year 2030.

 

While Pennsylvanians for Reliable Power recognizes conservation and increased use of renewable resources (or "green energy") as critical components to meeting the energy challenge, these steps alone are not sufficient to meet our increasing electricity needs. Baseload electric generation (nuclear and coal) resources must have access to adequate transmission infrastructure in order to transport the energy and foster a competitively driven electric generation industry.

 

"We need an electric generation industry that is ready to meet our state's, and nation's, electric energy needs," says Quain. "Ultimately, the point we are trying to get across is that the solution is a combination of conservation, alternative energy and the improvement and expansion of our existing transmission infrastructure, all within a competitive electric industry."

 

For more information, visit the Pennsylvanians for Reliable Power's website.