A decade of restructuring has not affected the financial integrity of the average regulated utility.
Leonard Hyman is senior associate consultant with R.J. Rudden Associates and a financial analyst and economist specializing in public utility finance, regulation, and economics. The opinions offered are those of the authors and not official viewpoints of the company nor its other employees.
Ideological bias, economic principles, success of previous deregulation, inordinate greed, and political expediency fueled the movement for electricity deregulation. The authorities, however, never deregulated. They chose to restructure. Congress passed the Energy Policy Act of 1992, which ushered in wholesale power markets, opened the transmission market to competitive power producers, and freed electric utilities from restrictions on investment activities outside the regulated sector.
By 1996, several states had decided to open their markets to competition. By 1998, power producers and traders had achieved stock market valuations formerly reserved for glamorous technology leaders. By the end of 2002, though, the world's greatest energy trader had collapsed, the generating sector teetered on the edge of the abyss, the public had demonstrated its apathy toward competitive retail supplies, and restructuring had stopped at the state level. By mid-2003, the generators on the edge of the abyss had fallen in, federal regulators had backed off from their standard market design, and utility managers had trekked from coast to coast extolling the virtues of their plain-vanilla, regulated utility businesses.
Rather than rehash a list of errors made, delve into the unsubstantiated assertions that substitute for public policy analysis, or debate whether deregulation will rise from its coffin like Dracula, let us instead look at the numbers to assess the benefits of restructuring and, perhaps, look into the future.