By Donella Meadows

–June 27, 1996–

The airlines were deregulated, and we got lower prices on popular routes, higher prices on all other routes, a weakened government oversight system and a Valujet crash.

The phone companies were allowed to compete, and the result was lower prices for long distance calls, higher prices for local ones and a constant onslaught of noisy ads and confusing choices.

The health care system is privatizing, we can hardly afford it any more, we can’t choose our doctor or our treatment, caring is squeezed out by cost-cutting, but prices are zooming up anyway and everyone hates the system but the stockholders.

Now market competition, the magic formula that makes life better in every way, is coming to electricity.

It’s called utility reform, restructuring, retail wheeling.  This last name refers to the fact that generators will be able to “wheel” their power to any customer who wants to buy it, no matter where that customer is.  As with the telephone industry, local utilities will still maintain the delivery lines, but providers can compete to sell the stuff that flows through the lines.

The push for retail wheeling comes from big electricity users, industries that get mad if rates in the regions where their plants are located (such as New England, full of nuclear plants) rise higher than rates paid by their competitors elsewhere (such as the Pacific Northwest with cheap hydropower).  They want to be able to negotiate for the lowest-priced power they can find.

You can’t blame them.  But you should keep firmly in mind, as we are bombarded with glorious promises of more choices and lower rates, that, as with every market system, the big players will have the wherewithal to grab the best deals.  If anything good trickles down to us little guys, it will have to come from guarantees built in as the laws of the new system are written.

That’s one reason for normal ratepayers to pay close attention here.  There are others.

If electricity providers really had to compete on an open market, the cheapest ones would win.  Given current pricing, that means hydro (which messes up rivers and floods land), gas (environmentally one of the best choices), and dirty coal.  Normal ratepayers who are also normal air-breathers might have strong interest in preventing coal from dominating the market.  That means strict emission requirements and stiff carbon taxes as prerequisites to retail wheeling.

Wood, solar, and wind-generated electricity would have a harder time competing, though wind at good sites is low in price, and the others are dropping.  Retail wheeling could let environmentally concerned folks shop around for electricity from “clean” sources.  I can imagine marketing consortiums that would offer the greenest possible electricity.  But let’s face it, if that electricity is higher in price, it will capture only a small fraction of the market.

Competitive pricing should drive the final stake through the heart of nuclear power, by far the most expensive of electricity sources.  But it won’t happen.  With billions of dollars of construction debt, the owners of nuclear plants are front and center wherever new utility rules are discussed.  They chant, “stranded assets, stranded assets, stranded assets.”  That means: “we made major investments under the old system, and it’s not fair to hit us with a new system that won’t let us pay them off.”

Again, you can’t blame them, though it has been clear to rational persons for years now that nuclear power was a terrible investment.  The upshot of the stranded-assets cry will be that the new “competitive” system will somehow shield nuclear power plants from competition.  Already the most highly subsidized electricity source (we taxpayers underwrite its research, its insurance, its regulation, and its unsolved waste problems), nuclear power will continue to get a special deal.

The worst problem in a competitive electric system will be that at least for major users in the short term, it will work.  Competition will force downsizing and outsourcing and regulation weakening.  Costs will be shifted to workers, the environment, the society, and the future.  Price will drop, removing incentive to conserve electricity.  Companies will swallow up companies until, as in telecommunications and health care and airlines, competition — the point of the reform — will effectively disappear.

We know how to prevent this outcome.  Strong anti-trust laws.  Strict, unbendable environmental standards.  Removal of special subsidies.  “Brown taxes” to ensure that real costs to the environment and to communities are captured in price.  Thoroughgoing campaign reform, so the government that is supposed to enforce these necessary market controls can’t be corrupted.

Those changes are necessary for any market to work.  When they happen, competitive electricity will be a fine idea.  Not before.

(Donella H. Meadows is an adjunct professor of environmental studies at Dartmouth College.)

Copyright Sustainability Institute 1995