Free market think-tank says US retail market restructuring failed

Washington  (Platts)--30Nov2004

Because efforts to restructure retail power markets have largely failed to
deliver reduced electricity costs to consumers and contributed to problems in
the industry, all efforts should be abandoned in favor of "more aggressive
deregulation," according to a report Tuesday by the Cato Institute. Such
deregulation strategies as mandating separation of generation, transmission
and distribution functions in all states is not politically viable, however,
and the report by the free market think-tank instead recommends a second-best
alternative of returning to vertically integrated utilities with more adoption
of real-time pricing. Utility adoption of real-time pricing could reduce peak
demand, improve generation efficiency and can be accomplished under
traditional regulatory structures, the report said. The report asserts that
all states will not embrace the US Federal Energy Regulatory Commission's
standard market design proposal for the wholesale market and that retail
restructuring efforts contributed to the California power crisis in 2001 and
the Aug 13, 2003, blackout. Combining wholesale market changes with
traditional state regulation of retail markets "is an unwieldy marriage that
has created an economic mess and led to the establishment of artificial market
institutions that invite manipulation and abuse," the Cato Institute said.

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