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Electric power wheeling and dealing: Technological considerations for increasing competition
Book reviews
genre is likely to be the publication later this year of Dan Yergin’s blockbuster on the international oil industry. Having read some of the draft it will clearly be a major milestone in economic history. Meanwhile, I would recommend, without hesitation, Oil. The Devil’s Gold, as, in my opinion. the best general introduction to cur-
rent issues in the oil industry available today. As the authors point out. there is nothing particularly devilish about oil - it is just another commodity, but one which now still engages the politics of power on a corporate, governmental, regional and truly global scale as no other.
Complex wheeling and dealing ELECTRIC POWER WHEELING AND DEALING: Technological Considerations for Increasing Competition Office of Technology Assessment, Congress of the United States Washington, DC, US Government Printing Office, 1989, 276 pp US$lZ. 00 The electric utilities’ transmission and distribution networks have been described as the most complex machine ever created by man. Further complicating the picture in the USA is that the industry consists of over 3 200 independent generation, transmission and distribution entities that supply power to over 100 million customers. representing a population exceeding 240 million. The mere fact that these entities can coordinate their actions so that electrical energy is supplied to the end-users is a near miracle. Against this background and a heated (and not always rational) debate on proposals to introduce an element of competition to transmission networks, comes OTA’s report on Electric Power ~~ee[~~~ and De&&g.
This report reviews five possible scenarios for increased competition in the electric utility industry (focusing on transmission issues) and concludes that there are no ‘insurmountable problems of technical feasibility’. The report then goes on to modify this conclusion by stating that there are, in fact, many potential risks and uncertainties along the way - eg lack of information analysis, experience to guide policy decisions - and recommends that only very cautious, gradual steps towards introducing competition UTILITIES
POLICY
October
1990
be considered. It cautions that ‘changes affecting the transmission system could cause major reliability and cost problems unless [they are] introduced carefully ‘. So what should the novice reader conclude? The OTA report reads like a classic ‘on the one hand . ., on the other hand . .’ economist joke. For example, it states that ‘the system can be made to work under any of the institutional/regulatory arrangements considered in this study’. On the other hand, ‘the costs, benefits, and impacts of competition are very uncertain. Actual experience is limited, and little analysis have been performed. The benefits from [increased] competition are speculative and difficult to quantify, particularly from a national perspective. Rapid change will entail the greatest risks, and special attention will have to be paid to developing appropriate institutional safeguard’ (emphasis added). It goes on to say: ‘If implemented unwisely, competition easily could result in higher costs and lower reliability because crucial functions such as economic dispatch would not work as effectively.’ On balance, the OTA study should be commended for its thorough and detailed description of the intricacies of the US electric power transmission and distribution network, This report is a must for anyone interested in transmission policy issues. The study is also useful in its description of five potential future competition scenarios and their implications. On technical grounds it is on solid footing and provides many useful references. But when it comes to policy conclusions, it begins to read like a report written by
Paul Tempest Shell Cenrre London, UK
lAnthony Samson. The Seven .%rcr.~:v, Hodder and Stoughton, London. 1975; Adam Hamilton and Christopher Tugendhat. Oil. The Biggest Business. Eyre Methuen, London, 1968; Leonard Mosley, Power Play, We~denfeld and Nicholson. London. 1973. ‘Editorials, The Econo?nis/, 197.3-1973.
a committee. It appears to take both sides of the argument, and by doing so, it is not unequivocal in its conclusion and recommendations. William C. Hayes’ likens the reports’ conclusion to a particularly irritating statement in his Austin-Healy Owner’s Manual which asserts, matter of factly, that ‘there should be no insurmountable problems in performing any required maintenance’. The first step in performing most engine maintenance tasks was to ‘remove the engine from the car’. Hayes concludes his editorial by saying ‘there are no insurmountable problems ahead; but the hard work comes first, in preparing the way before we get to them’.
wheeling
and access issues
Given the politically charged nature of transmission access and wheeling issues raging in the US Congress and FERC’ it is not surprising that the OTA report appears to be sitting on the fence on policy recommendations, but technically speaking, it does an excellent job of explaining this most complex machine ever made. And perhaps, the issues are indeed so complex and intertwined that one cannot draw unequivocal conclusions. Fere~d~o~ P. Soshansi Southern Cuiifornia Edison Company Rosemead, CA, USA
‘Editorial, Electrical World. November 1989. ‘See, for example. ‘The transmission access hot potato returns’, Public ~tiljtie~ F~r~~~gh~i~,22 June 1989: ‘FERC transmission task force report released’. PubLie UMGes Fort~igh~ly, 23 November 1989. 99
genre is likely to be the publication later this year of Dan Yergin’s blockbuster on the international oil industry. Having read some of the draft it will clearly be a major milestone in economic history. Meanwhile, I would recommend, without hesitation, Oil. The Devil’s Gold, as, in my opinion. the best general introduction to cur-
rent issues in the oil industry available today. As the authors point out. there is nothing particularly devilish about oil - it is just another commodity, but one which now still engages the politics of power on a corporate, governmental, regional and truly global scale as no other.
Complex wheeling and dealing ELECTRIC POWER WHEELING AND DEALING: Technological Considerations for Increasing Competition Office of Technology Assessment, Congress of the United States Washington, DC, US Government Printing Office, 1989, 276 pp US$lZ. 00 The electric utilities’ transmission and distribution networks have been described as the most complex machine ever created by man. Further complicating the picture in the USA is that the industry consists of over 3 200 independent generation, transmission and distribution entities that supply power to over 100 million customers. representing a population exceeding 240 million. The mere fact that these entities can coordinate their actions so that electrical energy is supplied to the end-users is a near miracle. Against this background and a heated (and not always rational) debate on proposals to introduce an element of competition to transmission networks, comes OTA’s report on Electric Power ~~ee[~~~ and De&&g.
This report reviews five possible scenarios for increased competition in the electric utility industry (focusing on transmission issues) and concludes that there are no ‘insurmountable problems of technical feasibility’. The report then goes on to modify this conclusion by stating that there are, in fact, many potential risks and uncertainties along the way - eg lack of information analysis, experience to guide policy decisions - and recommends that only very cautious, gradual steps towards introducing competition UTILITIES
POLICY
October
1990
be considered. It cautions that ‘changes affecting the transmission system could cause major reliability and cost problems unless [they are] introduced carefully ‘. So what should the novice reader conclude? The OTA report reads like a classic ‘on the one hand . ., on the other hand . .’ economist joke. For example, it states that ‘the system can be made to work under any of the institutional/regulatory arrangements considered in this study’. On the other hand, ‘the costs, benefits, and impacts of competition are very uncertain. Actual experience is limited, and little analysis have been performed. The benefits from [increased] competition are speculative and difficult to quantify, particularly from a national perspective. Rapid change will entail the greatest risks, and special attention will have to be paid to developing appropriate institutional safeguard’ (emphasis added). It goes on to say: ‘If implemented unwisely, competition easily could result in higher costs and lower reliability because crucial functions such as economic dispatch would not work as effectively.’ On balance, the OTA study should be commended for its thorough and detailed description of the intricacies of the US electric power transmission and distribution network, This report is a must for anyone interested in transmission policy issues. The study is also useful in its description of five potential future competition scenarios and their implications. On technical grounds it is on solid footing and provides many useful references. But when it comes to policy conclusions, it begins to read like a report written by
Paul Tempest Shell Cenrre London, UK
lAnthony Samson. The Seven .%rcr.~:v, Hodder and Stoughton, London. 1975; Adam Hamilton and Christopher Tugendhat. Oil. The Biggest Business. Eyre Methuen, London, 1968; Leonard Mosley, Power Play, We~denfeld and Nicholson. London. 1973. ‘Editorials, The Econo?nis/, 197.3-1973.
a committee. It appears to take both sides of the argument, and by doing so, it is not unequivocal in its conclusion and recommendations. William C. Hayes’ likens the reports’ conclusion to a particularly irritating statement in his Austin-Healy Owner’s Manual which asserts, matter of factly, that ‘there should be no insurmountable problems in performing any required maintenance’. The first step in performing most engine maintenance tasks was to ‘remove the engine from the car’. Hayes concludes his editorial by saying ‘there are no insurmountable problems ahead; but the hard work comes first, in preparing the way before we get to them’.
wheeling
and access issues
Given the politically charged nature of transmission access and wheeling issues raging in the US Congress and FERC’ it is not surprising that the OTA report appears to be sitting on the fence on policy recommendations, but technically speaking, it does an excellent job of explaining this most complex machine ever made. And perhaps, the issues are indeed so complex and intertwined that one cannot draw unequivocal conclusions. Fere~d~o~ P. Soshansi Southern Cuiifornia Edison Company Rosemead, CA, USA
‘Editorial, Electrical World. November 1989. ‘See, for example. ‘The transmission access hot potato returns’, Public ~tiljtie~ F~r~~~gh~i~,22 June 1989: ‘FERC transmission task force report released’. PubLie UMGes Fort~igh~ly, 23 November 1989. 99