Features

Electricity Goes to Market

  • January 2002
  • By Robert Pool

Building intelligence into the power grid would make electricity cheaper and more reliable. The technology-from self-monitoring power lines to giant transistors-is ready to go. But no one has an incentive to foot the bill.

   

Economists aren't generally known for consensus of opinion, but there's one point on which almost all of them agree: regulated markets are less efficient and end up costing consumers more than unregulated markets. It is this conviction that has driven the deregulation of the electric utility industry over the past decade. In a free electricity marketplace, the theory goes, the forces of supply and demand would drive the industry to become more efficient and reliable. Electricity prices would drop, supplies would increase and companies would make rational investment decisions based on expected returns. Because one unit of power is indistinguishable from any other, electricity would ultimately become a commodity, bought and sold on the basis of price with no concern over whether it was produced a few kilometers away or halfway across the country.

Time has shown, however, that the road to commoditization will not be without its bumps. As the California energy crisis of 2000 has demonstrated, partial deregulation-in this case, letting wholesale electricity prices float while keeping the retail price capped-can make matters worse. And as long as public opposition to new generating plants remains high, the supply of electric power will have difficulty keeping up with demand, no matter how enlightened the deregulatory policies.

 

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