Power Deregulation

As James Flanigan points out (“Deregulating Utilities Can Learn From Enron,” Aug. 18), there are utilities that are high-cost producers of electricity, such as Los Angeles’ Department of Water and Power.

Several utilities have found themselves in that position by following a strategy of self-sufficiency in power generation. One municipality that has pursued a different strategy is the city of Anaheim. Rather than being self-sufficient in power generation, it largely purchases power from other producers and distributes it to the city through its own distribution system.

Relatively unencumbered by high-cost fixed investments in power-generating facilities, it is free to “shop the market” for the best prices for its customers.

In the newly competitive environment spawned by the Energy Policy Act of 1992, the strategic positioning of a municipal utility such as Anaheim’s juxtaposed against one such as L.A.’s DWP presents a ready-made “economic laboratory” to test and evaluate the competitive viability of competing strategies.

ROBERT P. KIESEWETTER

Santa Paula

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Flanigan’s column contains perspectives that seem to be based on inaccurate information on utility generating costs and, more important, misinterpretation of the effect that deregulation would have had on the Aug. 10 blackout in the Western U.S.

First, he discusses that great savings would be achieved through deregulation because California utilities charge 10 cents per kilowatt-hour for producing electricity, compared with only 3 cents for efficient producers. This is an apples-against-oranges comparison.

These numbers are easily confused in the debate about savings to be achieved through deregulation of the electric utility industry. Savings achieved, if any, will not be even remotely close to the difference in these numbers.

Another important perspective expressed in the article was that the blackout would have been less likely with deregulation. Exactly the opposite may be the case, based on how deregulation is proposed to be accomplished in California.

The exact opposite perspective can be illustrated by looking at some of the critical generation that was actually used to recover from the blackout situation. Southern California Edison has about 40 clean, natural-gas-burning power plants which can be used to supply local needs or for transport to other utilities. These plants produce electricity for about 3 cents per kilowatt-hour.

At the time of the blackout, about 20 of these plants were operating, with the remainder not being required and, therefore, shut down. All of the plants were placed in service on an emergency basis to help restore power first, then also to assist during the following days to serve local customer electricity needs driven up by the regionwide heat wave and to lend a hand to some adjacent utilities. This helped avoid curtailments in service to electricity customers as the heat wave wore on.

Because the transmission connecting California to the Northwest (via the Pacific Intertie) was severely restricted in its capability to improve the margin for reliability, locally available generation was critical to restoring power to customers and maintaining service the rest of the week.

The deregulation approach being proposed in California will most likely result in many of the existing local gas-fueled power plants being retired from service. These plants have provided a margin of reliability that, in a completely price-driven marketplace, will simply no longer be available.

Thus, the market approach being proposed will result in fewer plants, not more plants, in service. This will result in lower reliability of electric service in future years.

LARRY HAMLIN

Fountain Valley