As the U.S. electric power industry unbundles, the industry and its regulators grapple with two big questions concerning the degree to which distribution services should be unbundled. First, what groups of distribution activities can separate suppliers provide? Second, which of these groups of activities should be open to competition?
Looking at the unbundling experiences of Argentina, Australia, Canada, Chile, Norway and the United Kingdom sheds light on these questions. The distribution unbundling of the U.S. gas and telecommunications industries provides additional insights.
So, what can the U.S. electric power industry learn from these experiences? First, distribution can be unbundled (em for a price. Distribution unbundling raises questions of coordination and responsibility. Who's responsible when the lights go out? International experience shows that incentives affect market participants' willingness to invest in new distribution facilities. Finally, unbundling benefits consumers through new and better services; but these benefits usually mean higher rates and increased complexity.
International Power Experiences
Table 1 summarizes some key characteristics of distribution service unbundling in the six nations in this survey. The table shows at least two striking facts. First, half of the respondents have not unbundled distribution services (em and do not intend to do so. Second, those nations that have unbundled services, with the exception of Chile, have done so only very recently. (The Chilean exception is not very important, however, as its unbundling has been very limited.) The second striking fact is that, even in the nations that have unbundled distribution, those services account for only a small share of distribution costs.