The electric
utility industry is stuck in a “prolonged and muddled
transition” to a competitive market that could produce renewed
political interference and re-regulation, said a new report.
The
report, “Electric Power Trends 2001,” found that the likelihood
of re-regulation and federal or state interference could wreak havoc
on electric reliability.Cambridge
Energy Research Associates in Cambridge, Massachusetts, and Arthur
Andersen released their mid-course examination of the electric
utility industry on September 19.
Further,
the slowing pace of state restructuring efforts has complicated the
development of competitive markets for energy services, retail and
wholesale marketing.“There
is no indication that this trend will change, and the power industry
is likely to face a new round of restructuring in an attempt to
‘fix’ the perceived shortcomings in the market,” the report
said.The study set
forth a “baker’s dozen” of emerging trends that will challenge
electric utilities during this period of transformation.
They
are as follows:
A
prolonged period of state and federal negotiations over critical
issues in deregulation has resulted in “patch-work,”
inefficient restructuring.
Volatility
of prices in the wholesale market, once considered
“abnormal,” is now normal.
Old
power plants have commanded prices much higher than their net
book value.
The
market values of nuclear plants are rising.
Stranded
cost estimates are greatly reduced and recovery through
transition, or wires, charges is widely accepted.
Customers
are choosing not to choose.Last year, less than 1 percent of electric customers
switched from a traditional supplier, even though more than 20
percent were eligible.
Restructuring
has not led to a national power market envisioned by
policymakers.
Transmission
transfer capability and network reliability are declining
because there are few incentives to boost investment in the
transmission grid.
An
electric supply tsunami,” or tidal wave, in proposed 240,000
MW of generation capacity, could overwhelm the projected need
for new supply in several regions.
Use of
natural gas as a fuel in proposed generation projects is growing,
but exploration and development of new supply is
declining.
Contrary
to popular belief, the “New Economy” and its growing use of
the Internet is not as electricity intensive than the old
economy.
Distributed
generation remains a niche business and is not as widespread as
analysts believe.
Since
the start of industry restructuring, few electric utilities have
achieved stock valuations higher than those back in the regulated
era.
Kentucky Association of
Electric Cooperatives, Inc.
4515 Bishop Lane * Louisville, KY 40218
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