It's widely agreed that a truly competitive market can spark innovation and price competition, both of which should end up benefitting society at large. But there are some places where markets are an awkward fit, and electricity production is one of them. In the developed world, we effectively view having electricity as a human right, something required to fully participate in society. And the production of electricity comes with some rather large externalities, costs that are borne by society as a whole, like the health impacts of burning coal.
Nevertheless, in the US, we've generally tried to open up utilities to competition, under the view that it should help lower prices for consumers. While deregulation may have had that effect, it also seems to have generated infuriating behavior, the pinnacle of which was Enron's illegal manipulation of California's market, which led to widespread energy shortages.
I'm reminded of this because I recently came across an article that's almost equally infuriating, although in a different way. It concerns FirstEnergy Corp., an Ohio-based utility. Back in 2008, FirstEnergy was a big proponent of deregulation. During the same time, it bet big on coal and nuclear, figuring that two sources of electricity with relatively stable prices would stand it in good stead.
Instead, it's been hammered by the fact that natural gas prices haven't been stable; instead, they've plunged. The article paraphrases the company's CEO as saying its "future is at risk if it cannot convince the state's Public Utilities Commission to force ratepayers to cover the full cost of electricity from two of its huge coal and nuclear plants, even if other sources of electricity, such as natural gas, would be cheaper for consumers." In other words, it wants an end to deregulation because its bets on the market didn't work out.
And, in the meantime, FirstEnergy has apparently been screwing the environment in the name of its bottom line. The article indicates that, in 2009, the company was instrumental in convincing legislators to suspend rules that were fostering the adoption of energy efficiency technology, and to stop implementation of its renewable energy requirements. Efficiency, of course, would mean that consumers pay for less electricity, which is a problem for FirstEnergy. And, in the Midwest, well-sited wind turbines are producing electricity more cheaply than either of the company's favored generating techniques.
This sort of behavior is pretty outrageous. But, unfortunately, we can probably expect to see more of it.
It's likely that many states will deal with the US' greenhouse gas limits by pushing for more efficient energy use. That will at the least mean that the utilities have less business; in the worst cases, it can mean that they shutter some of their large, rather expensive generating infrastructure.
There's even some talk of what's called a "utility death spiral." With states like California pushing hard for renewable energy, it may force large fossil fuel plants offline even when they could be economically generating power. There's also a version of the death spiral where dropping costs of solar panels lets more homeowners install them, essentially removing customers from the grid for large chunks of the day. That can force the utilities to charge the remaining customers more, which makes solar installs even better economically, creating a downward cycle.
Even if there isn't a death spiral, it's clear that we're in a period of transition in the energy industry, and transitions create both opportunities and pain. But if companies go running to the legislature every time they suffer from some pain, the transition will be longer and more difficult than necessary. And it will become more likely that the consumers and the environment they live in will share in the pain.
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