By Jim Clarkson – June 21, 2022
“… The best arrangement for using market forces in electricity… would be a spontaneous, voluntary, indigenous, bottom-up approach to developing market relationships rather than mandates of government.”
“The appropriate goal of consumer groups and free-market advocates should not be to force service establishments to allow others to use their private property, but rather to reduce the impediment to competition among operators. current and new offers.”
The common goals sought by those seeking to reform the electricity market are: required access rights and general shipping for state-regulated utilities. However, it is not the best way to take advantage of market factors in electricity. It is much better to be a spontaneous, voluntary, indigenous, bottom-up approach to developing market relationships than government mandates.
The state of Georgia has a system that can become a prosperous, free market. Ninety different utilities in the state share the same high voltage electrical system. There is active and strong competition for new customers with connection loads of 900 kilowatts or more in most territories. Just drop any minimum load requirements and allow the selection of serving extensions to be permanent instead of a one-time selection.
This sharing of transmission media has precedent with oil and gas pipelines. Gasoline and diesel retail is very competitive, behind which are transportation sharing arrangements for intrastate and interstate pipelines. It is in their mutual interest to avoid duplicate, single owner pipelines. This happens without regulation as opposed to interstate natural gas pipelines that are developed under regulation.
The development of the Georgia line-sharing system has a unique history and shows how the lack of government intervention allowed beneficial market relationships to flourish. By the 1970s, a consortium of municipal utility and electricity member cooperatives had acquired partial ownership in certain power plants with Georgia Power.
But Georgia Power had begun building a nuclear plant and quickly fell into serious cost overruns. At that time, the “used and useful” doctrine was in effect to allow for the return of capital of newly created assets. Despite several attempts by state regulators to provide some relief, the utility has faced bankruptcy. During a period of high interest rates, Georgia Power sought partnerships with EMCs and Munies that had access to low-interest loans to relieve their problems. Potential partners already have some transmission assets and require that all owners of a common system have access to all transmissions.
This is a negotiated, optional, solution to different problems and different interests of the parties. This agreement is not dictated by a regulatory authority or by a legislative directive.
The sharing agreement occurred in 1974 when AT&T broke up by court order to include authorized joint transportation by people who were not AT&T owners and the “Baby Bells” long-distance system. Unfortunately, this escrow transfer with the stranded asset recovery model has already been implemented in the wholesale electricity market.
There are 47 municipal electrical systems in Georgia. These utilities have long attracted cautious large electricity users by agreeing to allow them to switch to large investor-owned utility if they find urban service unsatisfactory.
The 39 EMCs in the Georgia Power territory (there are three on TVA) have also provided a conversion option for many new customers. In fact, some customers have actually implemented this option. The Georgia Public Service Commission has in recent years stated, at Georgia Power’s urging, that such contract terms are not permitted. However, the court case overwhelmingly PSC has not been overturned.
Georgia’s municipalities, such as Georgia Power, have a long-term growth strategy in electricity in the hope of selling off-grid generations. The Municipal Wholesale Corporation has been successfully selling their portion of the very expensive Vogtle nuclear capacity currently under construction to other utility companies in Florida and Alabama for 20 years. This helps them reduce the payback for the nuclear plant and thus can offer lower bids to competitive new customers.
Georgia Power, meanwhile, adopted a strategy of building more generations than it needed to sell into the wholesale market. The strategy includes building cheaper combined-cycle gas-fired plants in their unregulated sister company, while building risky nuclear capacity in line with cost recovery state regulations. almost certain. However, the wholesale electricity market is moving to barter for hourly pricing, and long-term demand doesn’t look good for Georgia Power, who must now try to recover unnecessary capacity costs from customers. domestic goods are held captive.
Meanwhile, EMCs adopt a strategy of undercapacity and net buying from the wholesale market. Unlike the high customer density of munies and Georgia Power, EMCs are still growing and are attracting more new customers than their constant-growth competitors. EMC buys from various wholesale suppliers. Individual EMCs are acting like marketers, in effect, allowing their customers access to the wholesale market, which is not subject to any nuclear surcharges. EMCs can beat Georgia Power in competitive situations.
Laws that facilitate line sharing and serving customers in other distributor territories have been sponsored by the utility companies themselves. It undermines the monopolistic policies in effect throughout the rest of the country. This is a demonstration of what could be the policy of the future.
The appropriate goal of consumer groups and free-market advocates should not be to force utilities to allow others to use their own property but rather reduce obstacles to competition between existing and new suppliers. Franchise territories should be abolished entirely and all customers should have the right to choose and change their electrical utility. The government action needed is just to get out of the way and let a free market flourish. State and federal utility deregulation along with facilitation legislation. Then continue. The best public policy is no public policy.
Some people might worry about old gadget false alarms regarding duplicate wiring everywhere. But it is in the mutual interest of the parties to share facilities, including last-mile distribution wiring.
Let’s say a stubborn utility starts losing customers in a small area to a neighboring utility with better rates and policies. At first, the invader will extend its wiring into the incumbent’s territory. The incumbents soon realized the stranded wiring was being created and realized that they could at least restore it by selling things that would otherwise have abandoned the wiring. Or they may agree to share as a means of receiving a share of the revenue instead of nothing.
In Georgia, the fact that consumer choice and utility conversion exists, even when it is restricted, has a huge impact on utility behavior and regulatory policies. Because such options exist, utilities strive to treat customers like customers.
That’s a good thing – and a potential benefit to surviving the rate-base increase from projects like Plant Vogtle #3 and #4 and over-accessing to “green” energy.
Clarkson is the founder and chairman of Supply Management.