Reasons and effects of a low commitment to Energy Infrastructure

Electricity service is, by its nature a highly capital intensive and a politically constrained enterprise. It involves more than 3,000 companies; is owned by investors, municipalities, cooperatives, and federal agencies; and, is regulated by state and federal authorities whose jurisdictions overlap. Beginning with the Public Utility Regulatory Policy Act of 1978 and accelerating with the Energy Policy Act of 1992, orders to deregulate the electricity enterprise led to the partial dismantling of the institutional structure for the electricity sector. That structure has not been replaced by an alternative with coherent institutions and rules. As a consequence, elements of the diverse electricity sector are in crisis, and the effects have been spreading. The investor-owned utilities are operating under inconsistent and conflicting regulations.

Market reforms, however well intentioned, have shown mixed success and have resulted in rules that differ from state to state and, in many cases, from utility to utility within a state. Order 888, issued by the Federal Energy Regulatory Commission in 2000, required open access for all transactions on interstate transmission circuits. Federal open access orders, however, have not given clear direction for how open competition is to be implemented. Changing environmental policies have added to the uncertainty in the electricity sector, even though many proposals were intended to reduce uncertainty.

Any one of these problems might have been manageable. But the concurrent convergence of several independent difficulties has caused serious turmoil in the business aspects of the electricity sector. Increasingly, wholesale markets are thwarted by the inability of the aging US power delivery system to support transactions. Further expansion of retail deregulation has essentially come to a stop. Credit markets have shut out nearly all of the high risk energy trading companies, whose business has turned from boom to bust over the past several years. Other industry members have seen their credit ratings drop, and financing costs for the industry have risen dramatically. Those strains on business have affected any number of stakeholders in the electricity sector; they are unable to plan, unwilling to invest, and stalemated in their attempts to devise a way out of the current dilemma.