A solution to high electricity prices in restructured states.
Mark C. Beyer is chief economist of the New Jersey Board of Public Utilities (NJBPU). This article expresses his views and not necessarily those of the NJBPU, its commissioners or staff.
New baseload generation is needed in many areas of the United States to restrain electricity price increases and to assure reliability as economic growth creates increasing demand for electric power. The financing of new plants will be particularly challenging in restructured states where generation facilities are no longer included in rate base and therefore not financed through the traditional rate-of-return paradigm associated with vertical integration.
The adoption of a market hybrid approach in which new baseload plants would be partially owned and financed by the regulated distribution company with the other portion owned and financed by the unregulated generation company would combine the advantages of lower-cost capital and regulatory oversight associated with traditional rate-of-return regulation with the cost control and efficiency associated with competitive markets. In addition, the use of rate-reduction bonds borrowed from industry restructuring would further minimize the cost to ratepayers.