In the view of many, the electric utility industry is in the process of a significant restructuring - a basic realignment of the traditional relationships among those who generate, transmit, distribute and consume power. These changes stem, in large part, from ample supplies and reduced prices of natural gas; from technological advances affecting all segments of the industry; and from new and anticipated utility regulations that will influence power generation, transmission and, possibly, distribution.
In general, the effect of these changes will be to create more competitive wholesale and, potentially, retail markets for electricity. Economics textbooks teach a simple rule: markets are more competitive and efficient when there are many buyers and sellers of a product. Most of the changes under way in the electric industry are working toward that end.
Specifically, in the years ahead, the industry will likely see more electricity produced by both utilities and an increasing number of independent power developers; more pressure for access to transmission and distribution services by new, as well as traditional power producers; and more marketing of specialized electricity services and products to meet individual customer needs. In addition, if the electric industry follows the precedent of the natural gas industry, we may see a retail market for electricity where some individual consumers can shop among competing electricity sellers.
For the four state utility commissions in the Pacific Northwest, these changes are familiar. In the last decade, similar forces have worked to restructure the telecommunications and natural gas industries. In each case, utility commissions have adjusted their regulatory policies to the changing nature of each particular industry. Now the electric industry is undergoing a similar change in its structure, which will require a re-thinking of the way the traditional electric industry has been viewed by all of those involved with the industry, not just the · regulatory. commissions.
Tue purpose of this paper is to discuss what these changes portend for the future structure of the electric utility industry in this region and how the restructured industry may affect achievement of the goals of long-term, coordinated, least-cost power system planning, as implemented by the Northwest Power Planning Council; the Idaho, Montana, Oregon and Washington public utility commissions and the utilities they regulate; the energy facility siting councils in each state; the Bonneville Power Administration and the region's publicly owned utilities .. The paper examines the economic, technological and regulatory forces that are influencing the electric utility industry. It also outlines the specific competitive risks faced by the Bonneville Power Administration and its evolving response. More technical details relating to this paper are contained in a set of appendices, which are available from the Council's central office. (Ask for publication 94-4A)
For the Power Planning Council, this question pertains to its particular responsibilities under the 1980 Northwest Power Act. The Power Act describes a vision of a coordinated electrical system where resource decisions are made publicly to ensure their compatibility with the region's existing power system, its economy and the environment. The Act calls on the Council to develop a longterm, least-cost power plan that balances the region's need for an economical, efficient and reliable electricity system with the need to protect the environment, particularly fish and wildlife, affected by electric power generation.
As the Council begins the process of preparing its fourth electric power plan for the Pacific Northwest, it is analyzing how the changes in the utility industry will affect the ability of the industry to achieve a long-term, reliable, environmentally responsible and least-cost supply of electricity. To further this analysis, this paper develops one possible scenario for the emerging electricity industry. That scenario is one of significant transition from a predominantly regulatory planning environment to a competitive market environment at the wholesale level with at least elements of competition at the retail level. To some, this scenario may seem somewhat extreme. Council staff believe, however, that this scenario is a logical extension of trends in the industry and represents the views of many industry observers and participants. Many decisions being made in the industry today appear to reflect perceptions consistent with this scenario.
There can be significant benefits to competitive markets for electricity. At the same time, however, if these markets do not provide good price signals, and barriers to efficient market operation are not adequately addressed, competition could put at risk many of the goals of the Power Act and long-term, least-cost planning as practiced in the Northwest. Competitive markets as they are currently structured, particularly at the retail level, appear unlikely to fully achieve those goals. The challenge facing the Council, the regulatory commissions, state siting agencies and utilities is that of capturing the benefits of more competitive electricity markets while fulfilling the societal goals reflected in the Northwest Power Act and in least-cost planning as practiced by the region's utility regulatory commissions and individual utilities.