Emissions, Nuclear

Why deregulate power production?

Issue 3 and Volume 99.


Why deregulate power production?

I heard an interesting comment from the audience at a recent nuclear power meeting. The session topic was improving the performance of operating nuclear plants. The audience member said that his firm was taking advantage of design conservatism built into the type of reactor his plant used by increasing output with relatively low-cost modifications. His plant would be able to generate an extra 50 MW at a cost of only $25 million.

That?s good news, but the really interesting part followed. The speaker said that there were dozens of similar reactors in the United States. All have the same kind of design conservatism and the same opportunity for boosting power output at low cost. However, he said he knew of only two plant owners who were actually doing it. He said he asked others why they weren?t.

Several said they were afraid that if they did such a project their state public utility commissions would disallow the capital investment on the basis that they should have done it a long time ago. Regulation of natural monopolies is supposed to stand in for competition. It should provide a substitute for the missing motivation provided by competitors. It has been increasingly obvious in recent years that it is not achieving that goal in power generation. Too often regulation impedes progress and increased efficiency, as in the case of the conservative nuclear plants.

We?ve also seen this happen through the application of fuel adjustment clauses by state commissions. Gains in efficiency that reduce fuel consumption are, in many states, passed straight through to the ratepayer, leaving the plant owner no incentive to make the capital investment in the improvement technology. Why deregulate the power industry? Why all this disruption? Why not leave well-enough alone?

The stultifying effect of regulation, chiefly at the state level, is the main reason for this publication?s support of deregulation of wholesale power production. Nuclear plant owners in a competitive marketplace would not hesitate to boost reactor output at such a low cost. All of us would benefit from a power industry more willing to make investments in efficiency-improving technology. Several speakers at that nuclear meeting speculated that the next new nuclear power plant built in the United States would probably be an independent power plant built outside the regulated rate base. It would have to be owned by a utility for licensing reasons, most agreed, but the utility owner would probably operate it in the new, deregulated wholesale power market that is evolving.

The advantages of deregulation are not nearly so obvious to me in the area of power delivery, which is where all the debate and confusion are right now. Meaningful competition in power production requires more open access to power delivery facilities than is common today. However, regulation should probably continue to play a strong role, especially at the residential retail level.