An unintended consequence of electric utility deregulation, embraced by 23 states, has been more power outages and other reliability problems within the nation's electricity grid, a new study says.

• "In anticipation of competitive markets, some utilities have adopted a strategy of cost cutting that involves reduced spending on reliability," concludes the study by Department of Energy researchers. "...in many cases, state and federal regulatory policies are not providing adequate incentives for utilities to maintain and upgrade facilities to provide an acceptable level of reliability."

• States now swap and trade electricity over a grid more akin to "a two-lane or four-lane road than a superhighway," says Jim Owen of the Edison Electric Institute, an association of shareholder-owned utilities supplying 75 percent of the nation's power.

• Furthermore, deregulation has transformed what used to be a fairly genteel high-voltage interstate into a more rough-and-tumble passageway, says Gene Gorzelnik of the North American Electric Reliability Council (NERC), an industry organization that sets the rules of the interstate electricity grid.

When NERC was formed in 1968, in response to a massive blackout that blindsided New York City in 1965, "peer pressure" was enough to keep power companies in line, Gorzelnik says. Now that old-line utilities and independent power suppliers are fighting for business, "people are not following the rules of the road that have been established for operating the electrical system."

Observers say the DOE's paper provides additional ammunition to deregulation foes such as Nebraska Gov. Mike Johanns, who testified before a congressional panel that deregulation, also known as restructuring, would bring higher power costs to his state.

A final version of the interim DOE report is expected in March.

Source: Blair S. Walker, "Electric Deregulation Weakens Reliability, Study Finds," stateline.org, National Conference of State Legislatures, January 24, 2000.

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