|
Today's electric power industry was built on the principle that large, centralized power plants could achieve economies of scale that would make them the least expensive source of electricity. This principle deteriorated in the 1980s as small, highly efficient gas turbines—using technology similar to an airplane engine—offered the possibility of producing inexpensive electricity on a relatively small scale. At the same time, siting, permitting, and construction delays and costs for large-scale power plants made them less competitive. With these changes in the industry, it appeared likely to most electric utility companies that the entire industry was due for a change.
Around 1985, electric utilities began to anticipate the likelihood of increased competition and looked to cut costs and avoid heavy debt burdens that would make them uncompetitive. Large power plants, often involving investments of billions of dollars, started to be viewed as unacceptable risks, and many utilities went to great lengths to avoid new power plant investments. Demand-side management programs (programs to encourage energy efficiency and load reduction) became popular as one alternative to power plant construction.
By the time wholesale electricity competition began in the United States in 1996, utility investment in power plants had slowed considerably. Wholesale competition changed the way utilities operate and created the possibility of a complete restructuring of the electric power industry. With restructuring appearing imminent, electric utilities also reduced their investments in demand-side management because these investments seemed counter to their goals.
Electric restructuring came quickly to California, and several other states followed suit. But for the country as a whole, the process moved slowly. States with low electricity rates were reluctant to pursue restructuring. Efforts to establish restructuring on a federal level were not successful. As a result, the uncertainty in the industry dragged on, further discouraging utility investments. Load growths in the range of 3% per year also created little incentive to build new power plants and, in the Northeast, the option of importing inexpensive hydropower from Canada was a simple and inexpensive solution to growing power needs.
The resulting lack of generation growth has led to tight electricity supplies in much of the United States, particularly in California, which experienced an electricity crisis in the summer of 2000. A drop in hydropower production in the Pacific Northwest contributed to these tight electricity supplies.
Select one of the following topics for more in-depth information:
|
