Thanks Sean for you humble response. I will also comment on the post of Edward and Len.
OK: I get it, no legislatures, but commissioners. Regulators are then in a catch-22 situation. But, that situation is everywhere - electricity is shifting from an old full iron system to a new mixed iron and bits system. Maybe it should be FERC's work for the U.S. Congress. The shift is from a controlled market to a free market on the competitive activities. Retailers will be under a different type of regulation: free market - not socialistic - prudential regulation.
The transportation of electricity as a true natural monopoly will remain under the old type - socialistic - utility regulation for the public goods. That center stage monopoly will be in charge of real time operation based on real commitment of resources on both sides - supply and demand. Transportation utilities will still be in the business of winning rate cases to regulators. It should be a lot simpler for regulators to conduct that work without the complication of energy sales. Transportation will inherit the obligation to serve, but on whatever retailers negotiate with each end-customer (this is a new insight that I think no one has express yet. I would love a proof to the contrary). End customers will have demand response as a condition to be served (that is not mine).
Under Electricity Without Price Controls (EWPC) reform Sean's argument "Decades of confused utility regulation have given us the worst of both worlds - bad decisions by regulators who (no matter how intelligent) can never be expected to mimic the efficiency of a competitive market, coupled with incentives for customer abuse on the for-profit side of the utility enterprise," does not exist. The structure is very simple, because the two worlds are already separated at modular interfaces. No need to mimic al all.
As for Edward, there are many other capital intensive businesses operating in the free market. I suggest reading what Walter Wriston, chairman of Citicorp said in 1981 about the rights of inherited markets (see Megatrends: ten new directions transforming our lives, by John Naisbitt). That was the lesson of the railroads - a very capital intensive business that didn’t know it was on the business of transportation. It is evident that the bypass and cross subsidies to T&D, as Len suggest, issues disappear entirely under EWPC.
Sean item 4 is right on. It is a key element of EWPC. Retailers are the required structure operating under prudential regulation, which also reintegrates the T&D wires in every system. Most of the value destruction can be found in the underdevelopment of the demand side (which retailers should develop), where investments are bits intensive - not iron intensive like the supply side. No doubt that, under such new paradigm, emissions will be reduced.
I think I covered the whole ground. If I missed something please say so.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
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