After the blackouts the US government will step in and re-regulate...
industry and make everything better again, right? Wrong. The electric
industry is like Humpty Dumpty in that all of the congressmen and their
horses can't put it back together again. Besides, they can't do it without
admitting that their embracing a deregulated market with no reserve-margin
requirements was a mistake and is leading to disaster. When was the last
time Congress or a federal agency admitted its mistakes?
So what's ahead? I have always said that California leads the way and
however California goes, so goes the country. All we need do is watch what
happens in California after their meltdown to see what the rest of the
country is in for after it's meltdown.
The latest from that “land of creative solutions” is the newly proposed
self-generation tax. That's a really interesting notion in which one is not
charged or taxed for services provided, but rather for services not
provided. The state is now proposing to tax people who decide to generate
their own electric power to replace power from the utilities which is no
longer dependable and too expensive. The idea is to charge self-generators
enough to cover the costs of the transmission services they no longer use so
that their self-generated power is at least as expensive as the power they
would buy from their local utility. The plan is simply a means to warn the
public that they had better not even think of trying to get independence
from their local utility because they will pay though the nose just the
same. What the state and its utilities have realized is that as more
customers install their own generating capacity the cost to the remaining
customers will have to increase to cover the costs of the transmission and
distribution infrastructure. Of course as the utilities costs go up the more
customers will opt out and install their own generation and we will have
utility retail energy costs spiraling out of control until the whole system
collapses in bankruptcy. One important facet of deregulation was supposed to
be distributed generation. Distributed generation is small generating units
being constructed throughout the system to help reduce transmission and
distribution costs. Distributed generation was going to be just one more
step toward a more efficient and decentralized electric power system. In my
book I predicted that once the national brownouts and blackouts became
commonplace the electric customers would start installing their own
generators, fuel cells, etc. to ensure their own power supplies. That is now
taking place in California, but the state government is going to step in and
shut down those customers with tax penalties before they realize any cost
savings. However the state’s proposed tax may be a necessary evil because
almost everyone would opt for natural gas fuel in distributed generation and
the smaller generators available to the public are not nearly as efficient
as the combined cycle combustion turbines available to the larger generating
companies. In the end, distributed generation would put an undue burden on
California’s undersized natural gas transmission infrastructure which wouldn
’t be able to handle the capacity needs. So distributed generation would
only trade natural gas transmission insufficiency for electric transmission
insufficiency.
Isn't it strange that in the regulated power market any customer could
install and run his or her own generation equipment and become totally
independent of the regulated utilities, but in a free-power market customers
are denied the option of becoming independent of the utilities by a
government fine or tax. The tax should be called the freedom tax because
it's a tax that one has to pay for freedom in a free market that one doesn't
have to pay in a regulated market.
Of course only Californian's have enough guilt and are into
self-flagellation enough to pay such a tax. The rest of the nation would
revolt rather than accept such a tax. In order to keep the national electric
power system operating the federal government might have to step in and
subsidize the transmission/distribution industry to keep it viable. Why, you
ask? Because that is the only part of the industry that will continue to be
regulated and guaranteed a reasonable rate of return. The customers won't
pay the utility prices voluntarily, so they would have to pay supports in
their taxes.
So after the blackouts, our cheap deregulated electric power will be so
expensive that customers will run screaming from the market, be fined for
demanding independence, and taxed to pay for the idled transmission and
distribution capacity. These are the promises and benefits of the
deregulated power market designed and ballyhooed by the college economic
professors across this great land.
By the time the deregulation dust settles the American public will yearn for
a free market economy like they have over in Russia and the Balkans. Oh, how
times are a changing. The only step now separating us from a totally
socialistic electric power supply is the next one, the blackouts. After that
we'll be paying our electric bills to the American Peoples Power Company.
Jack Duckworth April 8, 2003
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