Dont Forget the Vision Thing in Deregulating Utilities
By Craven Crowell
August 30, 1998
The retail cost of electricity in the United States varies from 4 cents a kilowatt-hour in Kentucky to nearly 12 cents in parts of New York and New England. When the costs are added up, electricity is a $250 billion industry, with about 25 percent of the total supplied by public, government-owned utilities.
Various states have already deregulated their power markets or are planning to do so soon. And the role of public power as a benchmark in these markets is being addressed at the state level, and draft legislation has circulated in Congress.
While I strongly support deregulation and the increased competition that will result, it must be done correctly. Our experience with deregulating the telecommunications and banking industries has shown mixed results, and we should be careful as we transform an industry as enormous as electricity.
The key to measuring the success of deregulation will be the degree to which the changes benefit the public. Public utilities will set the standard for public responsibility, against which private companies can be measured, even as the Tennessee Valley Authority continues to provide its core productwholesale electric powerat competitive prices.
One of the greatest services that public utilities provide in a deregulated marketplace is vision. Competition among private utilities, especially in this era of just-in-time delivery, often breeds corporate eyesight that goes no further than the next quarterly report or todays closing share price on the New York Stock Exchange. And this lack of vision, especially in an industry of such magnitude and public impact, can have serious consequences.
One summer, if were unlucky, the country could find itself short of power in one or more cities. Just imagine what that could mean: Computers could crash for a full day or two, and transit systems could grind to a halt. The South and Midwest have already experienced minor curtailments this summer.
Private utilities know that the American economy is increasingly dependent on electrical power, but their bottom-line profit requirements do not allow for generating much excess capacity to cover future heat waves. A utility, for example, might argue that construction of another nuclear or hydroelectric plant would not produce the return on investment that its shareholders expect and demand. Excess capacity is unsold inventory; it is seen as inefficient.
At TVA, of course, we dont have shareholders. We have the public. So, while the Tennessee Valley Authority Act of 1933 does not let us build plants for power production greater than the requirements of our service area, which includes parts of seven Southeastern states, we can and do create a surplus power margin. This helps us serve our customers in the event of a power shortage; it would be irresponsible for us not to do so.
Of course, we could still run short of power someday in the Tennessee Valley. There is no telling how high the temperature will rise, or for how long. At TVA, we think long and hard about these issues. It is our responsibility because were a public utility.
In the future, we will need public utilities more than ever. Though some people predict that deregulation could reduce costs by as much as l0 percent a year, questions remain about the overall benefit to the public. Lower electricity costs, after all, are not the sole measure of the public good.
If energy companies degrade the environment to produce cheaper electricity, is that a net gain or loss for the people who use the power and live on the land? If a regional power company chooses to neglect its responsibilities to its local customers, thus making a bigger profit wheeling power to a distant market, is that a net benefit for the nation as a whole? And if people in rural areas receive more expensive or less reliable service than do the residents of large cries, is that fair or acceptable?
These issues will become even more difficult in the deregulated future. Public utilities like TVA, which serve the interests of the American people and not just corporate shareholders, will provide a benchmark by which all power companies can be measured.
Ultimately, deregulation should be about serving the public interest. It is our responsibility to work togetherpublic utilities, independent providers, industry executives and political leadersto meet that goal.
Craven Crowell is Chairman of the Tennessee Valley Authority
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