Regulating for Reliability

Re energy deregulation: There are two fundamental aspects of the electric power situation that are practically never even mentioned. First, and perhaps foremost, is the concept of the obligation to serve. It was the effort to meet this obligation that drove PG&E; and Edison into insolvency. None of the re-regulation schemes covered in James Flanigan’s May 12 column (Business) address this issue, which is eloquently addressed by John Balzar in his column (Commentary, May 12). If the Federal Energy Regulatory Commission is successful in splitting the U.S. electric industry into three independent parts--generation, transmission and distribution--the obligation to serve cannot be met.

No single part could do it by itself, but the FERC is pursuing this objective with a fanatical zeal. Commissioners simply believe the free market will provide.

The other issue is the technical complexity of electric power systems, which must be designed and operated to function as a whole. The three parts have to fit together. As an example, the concept of independent power producers is an oxymoron. Generators must come on line to meet the system requirements, not to serve the special interests of the producer. Last winter’s blackouts are examples of what can happen.

A reliable electric power network is the product of competent engineering and skilled and dedicated personnel. While it has to be cost-effective, it is not amenable to standard supply-and-demand economics.

Kenneth O. Cartwright

Glendale

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Balzar dismisses electric power deregulation as a “scam.” While our California version is badly flawed, deregulation in general has produced some remarkable benefits. A bit of history points this out.

Deregulation in the electrical generating business began with the federal Public Utility Regulatory Policy Act of 1978. Among other things, that law deregulated the electric generating business to the extent that small power producers were allowed to produce and sell power. Suddenly, new players were entering the market, and they needed relatively low-cost, reliable ways of producing electric power. This resulted in a whole new industry--the manufacture and use of gas turbines (essentially jet airplane engines) to generate electricity at much lower costs than traditional facilities.

Without “deregulation” of small power producers, this never would have happened. The traditional “rate of return” approach to setting the price of electricity sold by utilities (they were allowed a “reasonable rate of return” on their capital investment) encouraged the construction of large, expensive steam-generation plants. Let’s not abandon deregulation. Let’s fix it.

Edward S. Renwick

Los Angeles

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Enron and other energy companies deliberately manipulated the energy market to drive up prices and turn minor power shortages into critical ones. Their greed and arrogance caused them to fail, and they deserve no sympathy.

Yes, deregulation was flawed; yes, California is short of power plants due to NIMBYism; yes, Gov. Gray Davis was slow to react; and yes, the Public Utilities Commission acted like a group of amateurs. But that does not excuse the flagrant breakdown in corporate ethics and the top managers who displayed an utter disregard for the public health and safety of Californians.

Reliable electricity, natural gas and gasoline supplies are not commodities like wheat and corn. Because of the high capital requirements of the energy market, there are only a few major players and thus there is vulnerability to monopoly.

While deregulation looks wonderful in principle, it failed miserably in this instance. The FERC refused to act and appeared to be motivated more by politics than accepting its legal responsibility. The FERC and the Bush administration chose to blame California for creating the problem. What hubris.

Our nation’s energy markets, not just in California, are too important to function without strong regulatory oversight. Like it or not, the ability to exert market power and behave unethically is in the hands of too few companies. Until that is changed we should not risk being held hostage by those who have failed to play by the rules.

Lewis Elia

San Clemente

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Isn’t it time to rewrite criminal law? Enron executives are responsible for California blackouts and accompanying hardships, including risks to human life. They are responsible for swindling stockholders, putting workers out on the street and influencing public policy to benefit their industry. They have exhibited a total disregard for the well-being of others in the name of their own greed.

Are these the faces of our capitalistic system? Lord, I hope not.

Jim Hoover

Huntington Beach