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Power deregulation: Positive surge, or short circuit?

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So far, the decade-long effort to create a workable, competitive market for electricity in the United States has been mostly a flop.

In about 16 states, generating a third of the nation's power supply, retail customers have a choice of power providers, though not a meaningful one in many of these states.

Relatively few households have switched to new providers. And though regulators have stacked the decks in favor of new competitors, the dollar savings of switchers have been tiny.

Further, the electricity crisis in California, the bankruptcy of Pacific Gas & Electric Co., and the failure of Enron – once the world's largest energy trader – have stalled moves by other states toward a competitive system.

So where does the nation go now? Back to the old franchise-monopoly system? Or do the states move forward toward competitive power markets that actually work?

A controversial new study by Cambridge Energy Research Associates in Cambridge, Mass., warns: "If the power sector continues to muddle along its current path of inconsistent and uncoordinated deregulation, then a slip back to regulation is almost inevitable."

In fact, any competitive system will be highly regulated by necessity.

"The rules will be much more complex," says Sharon Reishus, one of the researchers for the CERA report.

In the old system, which still prevails in most states, a public-utility commission regulates power companies, most of which not only generate much of their own power, but also handle its distribution to consumers.

They also have a role in looking after regional transmission organizations that swap power between utilities in a given region to meet shifting demand.


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