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The environmental benefits that have been achieved through the regulatory process could be threatened by what may be a wholesale transformation of the U.S. electric utility industry, however. The impetus for such a transformation lies partly in the technological advances of recent years. Cogeneration and wind turbines, for example, can now compete effectively with utilities' nuclear and fossil-fuel plants, which became much more expensive to build and operate during the 1970s and 1980s. Even more importantly, independent energy companies using natural gas to fire relatively small, highly efficient "combined cycle" turbines modeled on jet aircraft engines have come to dominate the market for new generating capacity. As a result, few regulated utilities are now planning to build new capacity of their own, preferring instead to purchase the additional power they need from these independent firms. As the utilities have lost their technological—and cost—advantage over nonutility companies, many analysts have wondered whether they should continue to be regulated. Further impetus for deregulation is coming from large industrial customers, who would like to be able to shop for power throughout the country, taking advantage of their market clout to obtain the cheapest rate possible. Even the public is no longer as wedded to regulation as it was previously. In the 1970s and 1980s, policymakers began restructuring and deregulating numerous industries, including the telecommunications, commercial aviation, securities, banking, petroleum, natural gas, and trucking industries. These initiatives were often perceived positively, with most customers being able to obtain innovative new services at declining prices. The Persian Gulf War of early 1991 brought matters to a head as far as the restructuring of the utility industry was concerned. With the supply of oil from Iraq cut off, prices escalated and many policymakers believed the United States would suffer another energy crisis. Though the high prices quickly abated after a rapid conclusion to the war, President George Bush still pursued the development of an overall energy policy to reduce the United States' dependence on oil. But instead of government mandates, the Bush administration wanted to use free-market forces to encourage energy exploration and wise energy use. Congressional debate over the new energy policy took longer than expected, but in 1992 the president signed the Energy Policy Act into law.9 Although the amount of oil used by electric utilities had declined dramatically since the 1970s, the Bush administration nonetheless wished to subject the industry to market forces to encourage technological innovations and even greater energy efficiency. From the standpoint of the industry, the most important provision of the new law was that it permitted states to abandon the existing regulatory structure and introduce an element of competition into the market for electricity services. Within months, several states began studying the possibility of deregulation, and by 1996 four states had passed laws creating a free market in electricity after a relatively brief transition period. Eager to give competition a try, New Hampshire inaugurated a pilot program in May 1996 that allowed 11,000 residential customers to choose the company that would provide their electricity. About three dozen firms entered the market, offering rebates, bird feeders, spruce trees, showerheads, and Ben and Jerry's ice cream as inducements to sign up with them. The sources of the power these firms were offering varied. Some of them obtained their electricity from distant coal-burning plants; others offered to supply environmentally friendly power generated from renewable resources.10 Other states subsequently took advantage of the opportunity to deregulate their electric power systems. By the end of May 1999, 19 states had passed laws to restructure their utility industries, gradually increasing competition and reducing regulatory oversight by state commissions.11 A few states, such as California, have gone all the way and completely opened their electricity markets to competition. |
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