Excerpted from October 28, 2005, Solutions News Bulletin

New Studies Claim Benefits from Deregulation; Others Disagree

Two new studies assert that one reason electricity has decreased in real prices over the past seven years is due to industry restructuring activities. Other industry experts disagree.

In an October 19 press release, Cambridge Energy Research Associates (CERA) quotes its new study, which finds that consumers have achieved total savings of about $34 billion since the onset of power system deregulation in 1997. These savings, however, are only about 1 percent of electric revenues for the period.

The CERA report, titled “Beyond the Crossroads: The Future Direction of Power Industry Restructuring,” says that most of the savings occurred in the South—$24 billion, while the West experienced price increases of $7.3 billion. (See Figure 1.)

The report says the gains result from greater efficiency, more innovation and cost discipline. The report also states that most of the cost of new capital was borne not by customers but by investors.

CERA concludes that “restructuring across North America overall earns an aggregate grade of C+.” (See Figure 2.) And the report predicts future energy shortages because “the window of opportunity for building new generation and transmission facilities is rapidly closing.”

The report cites two additional industry challenges: creating a robust transmission grid and stabilizing the industry hybrid of regulation and competition.

Click here to read entire story in Solutions.

Table 1: Deregulation Savings by Region
Region	Savings
Northeast	$8 billion
Midwest	$8 billion
South	$24 billion
West	($7 billion)
Total	$34 billion
Source: Cambridge Energy Research Associates

 

Table 2: Industry Restructuring Report Card
Recommendation/Criteria		Grade
1.	Define the bounds of the wholesale markets to align with the physical grids	B
2.	Design wholesale markets to achieve critical mass	B
3.	Expand the RTO mission to integrate system operations and market operations tightly	B-
4.	Create regional wholesale spot markets	B
5.	Create capacity markets	C
6.	Adopt pricing mechanisms to manage transmission congestion	C+
7.	Stimulate appropriate transmission system planning and investment	B
8.	Ensure market transparency through information disclosure	B
9.	Rationalize energy infrastructure and development	C-
10.	Coordinate wholesale and retail transitions	C
11.	Minimize distortions of market price signals	B
12.	Connect demand to the market	C
Source: Cambridge Energy Research Associates