POINT/COUNTERPOINT.

• Position: Brief Article

Is Deregulation of the Electrical Industry Good for Utah?

Utah Committee of Consumer Services

NO

Generally, competition spurs innovation and drives prices down, especially for commodities. But electricity isn't a commodity, and it has became essential to our private, social and business lives. Someone once said, "To say that electricity is just another commodity is like saying that oxygen is just another gas."

When frozen peas are expensive or unavailable, broccoli or carrots may do. But only electricity will turn on the lights, control the furnace, or power the computer. Peas, broccoli and carrots can be stored anywhere along the distribution chain. But electricity must be generated at the very moment you want to use it.

Electric utilities operate as monopolies because it has never made economic sense to duplicate generation, transmission or distribution facilities. However, it does make sense for utilities to interconnect their systems, and co-operate during breakdowns and periods of localized high demand.

Rates are regulated to ensure fair prices and allow for reasonable profits. Utility companies are obligated to generate or buy enough electricity to provide their customers with reliable service.

However, this system has been under attack in recent years, beginning in states with much higher prices than Utah, including California, New Hampshire and Rhode Island.

If supply exceeds demand, and generators compete, prices will fall, according to deregulation theory. But, as demand grows, the surplus dwindles and prices climb. Furthermore, people will only build new generation if they expect high prices and profits. And prices will be higher if only a handful of companies own most of the generating capacity.

The transmission grid is not a superhighway -- it was built to move electricity from generators to customers, and to provide limited interconnection for reliability. To create an open market, additional lines will need to be built, raising prices even further.

So deregulation means ongoing shortages and higher prices.

Failure to adequately address these realities led to the recent California energy crisis. Many Utahns are now paying more for their electricity and rolling blackouts have become a real threat. So deregulation in California has already lowered reliability and raised prices. That isn't good for Utah, and deregulation here isn't likely to be good for us either.

SCOTT GUTTING

President of Energy Strategies LLC

YES Competition...