Deregulation of the airline, telecommunications and natural gas industries has produced confusion, considerable litigation and lower rates. The latter is precisely what happens when there is competition in the marketplace. Such is the expectation behind deregulation of the nearly $200 billion electric utility business in this country as framed by the 1992 Energy Policy Act.
Subsequent Federal Regulatory Commission decisions forcing power companies to permit other utilities to use their transmission lines to deliver electricity to a customer have sparked significant upheaval at power companies.
The issue, which Plastics News reporter Roger King wrote about May 6, affects all consumers of electricity, but especially the plastics industry, a heavy user of electrical power.
The average rate per kilowatt hour paid by industrial customers varies substantially across the United States.
Typically, high-cost electricity rates are in the Northeast and California, one reason so many processors can be found in the Midwest and South.
For example, the average kilowatt hourly rate charged rubber and plastics companies in 1994 by Newport Electric Corp. in Rhode Island was 400 percent more than that charged by PSI Energy Inc. in Indiana, according to research by Resource Data International Inc., based in Boulder, Colo.
The notion that electrical power could be sold competitively once was heresy. Power companies, it was argued, much like telephone service, constituted a natural monopoly. On that basis, they were guaranteed a generous rate-of-return by public utility commissions that effectively amounted to cost-plus contracts, which did nothing to reward efficiency.
The power industry meltdown now underway in the form of cost-cutting and mergers will take a number of years to reach the residence consumer and small businesses. Competition in the wholesale market, where utilities buy from each other, will spread first to large companies that use a lot of power. It is cheaper to serve these customers, who also can use their buying power to purchase less-expensive electricity from a supplier thousands of miles away.
That prospect, by extension, could include importing low cost power from Mexico, as a Page 9 story this week, ``Border-area power plant funded, could supply Texas processors,'' illustrates. Some of the electricity from a plant to be constructed by a private consortium near Ciudad Ju rez will be sold across the border, in El Paso.
There is a strong plastics processor community in El Paso that is eager to reduce operating expenses. They can do that if given the opportunity to purchase lower-priced power from an outside provider.
Such is the consumer dividend competition provides, which is why it is preferable to regulation.