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... as that time approaches, local conditions and price gouging can be expected to cause painful spikes in what U. S. consumers pay at the pump.
We must adjust to reality by reducing demand and converting to alternative sources. Higher oil prices today are a wakeup call to the fact that infinite growth is impossible and population growth is approaching the limits of what the environment can acceptably support. The standard of living of individual societies results from conversion of available natural resources into useful products through technology. These natural resources have limits that can be temporarily exceeded by importing them from regions with a surplus. But when such reserves have also been consumed, only the development of new technology to utilize renewable resources will preserve or improve a traditional standard of living. Unfortunately for the people with underdeveloped economies today, resources that are necessary to raise their living standard are being consumed by the developed economies.
For the people living in the underdeveloped economies to raise their standard of living now, new technological advances are required on a magnitude comparable to those that made fools of earlier predictors. The adverse effects that burning fossil fuels have had on our environment and their contribution to global warming are well documented. The fact is that the company would lose profits - just as any other oil company would if alternative energy sources were developed. Oil companies are searching for more oil reserves, not alternative sources for fossil fuels. More oil means more profit.
Another question is how new industry must be regulated. Each factor of an industry must be regulated for producers and consumers to truly benefit. The control of price does not mean setting one fixed price, but deals with the creation of a price structure for purchasing electricity during peak and non-peak times. The control of quantity refers to the government's attempt to control the amount of electricity produced.
For example, in the electric industry, it does not make sense to have a lot of small power plants produce electricity. However, it also not efficient to allow one company to monopolize the industry and set prices at its own discretion. Another factor in this problem is the control of entry and exit in the electric industry. By controlling who can enter the industry, the government can control who produces the electricity and how much of it they produce. However, the effectiveness of regulation has been questioned, and created the progression of a more competitive market. The question, Has electric regulation made a difference?
is one that has been asked for years and tears. Studies done throughout the 20 th century have found conflicting results. Some studies have found the average price of electricity was lower in states with regulation than those who werent. While many would say that prices could vary for reasons other than regulation, some sill argued that no significant difference in price existed. Other studies have been conducted where utilized econometric estimates of demand and costs have been used to find hypothetical unregulated prices. The conclusion was that the regulated prices were significantly lower, but that even lower prices were demanded.
Also they found that unregulated prices were 20 - 50 % higher than actual regulated prices. Although these studies seem to reach conclusions that support regulation, the alternative finding that even lower prices were demanded seems to be an indication towards open competition among electric producers. Soon thereafter, the trend toward competition between electric producers began to emerge. Most of privately owned utilities have been vertically integrated, meaning they own the power plants, the substations, the transmission lines, and the distribution systems. The Federal Energy Regulatory Commission is responsible for the regulation of wholesale transactions, and has done so through market based transactions. As wholesale transactions has become more important, large industrial buyers have begun to demand participation.
Instead of only being able to buy power through their local utility, they want the choice to purchase it from other companies, creating some type of open market competition. As this has occurred, the trend has trickled down to the individual consumer level, creating legislation. This piece of legislation has allowed consumers to choose their power supplier, and has led to decreased prices without regulation. One example is The Massachusetts Electricity Law, passed by legislature and signed into law on November 25, 1997, which was developed over three years with input and support from consumer advocates, small businesses and large employers, energy providers and experts, labor and environmental groups. The main objective of the new law was to allow Massachusetts consumers to choose their electricity supplier by breaking up the utility monopolies, and creating competition that will lead to lower rates in the future. Under the law, local electric companies still own and maintain the wires that bring the electricity to homes and businesses, but consumers are now able to choose the company that provides the electricity they use.
The distribution of electricity remains regulated to ensure reliable service to all consumers and to set distribution rates based on cost and performance, not at market prices. However, competitive power suppliers whose prices for electricity are not regulated now provide the generation of electricity. In addition to breaking up the utility monopolies, the law also provides electricity rate cuts to consumers while they choose which company to buy their electricity from. The law provides the opportunity to eliminate sales tax on electricity transmission costs for non-industrial businesses, saving this sector an estimated $ 30 million a year.
The law also created a 10 % rate discount for farmers and others in the agricultural industry. Therefore, under this system, the local electric company still delivers electricity to your home or business. However, one can purchase the electricity from the local company at the guaranteed minimum rate reduction, or they can choose to buy their electricity from another competing supplier if they decide that company offers better rates. In addition to lowering rates and allowing consumers to choose their power suppliers, the law also provides many other provisions designed to protect the consumer. The law requires all competitive power suppliers to be registered with the state Department of Telecommunications and Energy, and also requires the suppliers to continue to provide reliable service. The law also prohibits suppliers from switching a customer to a different supplier without the customer's consent.
The law also creates rate reductions for low-income consumers, such as senior citizens on a fixed income. As well as providing for these consumer protections, the law also entices economic growth within the state by lowering the cost of doing business through lower electric rates. This lower cost of doing business due to lower electric rates will encourage new employers, both large and small, to move into Massachusetts, as well as encouraging existing businesses to stay. It has already spurred the forecasts of new job growth, and in the years ahead, is expected to create thousands of new jobs throughout Massachusetts. However, even though the law seems to have many more benefits than it does negatives, it has come under recent criticism. Many opponents of the law feel it is not doing its designed purpose.
Supporters of the law were hoping for a 30 % rate reduction, of which two-thirds would have come from consumers not having to pay for most of the utilities stranded investments, they will now have to settle for a guaranteed 15 % rate cut, hopefully with more to come through competition. The question now on everyone's mind is: has the law served its purpose and reduced electric rates? According to recent studies, electric rates will decline by almost 28 % by the year 2010 as a direct result of retail competition and industry restructuring. Therefore, by examining the results of this law, along with projections, one can determine that the deregulation of the electric industry has been long overdue. This is good news for the companies such as Power Light Corp. Deregulation can either push prices up or down.
Massachusetts deregulation may or may not have the same results as in California. However, deregulation can drive prices up or down. More outages in California may be imminent in the near future. Consumers are aware of this possibility and are probably more than a little bit worried. People may think twice about actually installing alternative energy systems on the roofs of their house. Since Power Light Corp.
has been around for some time now, the likelihood of it going bankrupt is highly unlikely, as it has some cash to sit on just in case. Also, with deregulation, markets are more likely to rely on variable pricing. This will give customers an incentive to avoid using power at costly peak times, usually in the middle of the day, when the sun is shining. Power Light Corp. s sales are booming right now, and the way the market is right now, it looks as is if sales will continue to prosper. The economy itself is not doing well at all, but at a time when individuals are looking to save some money on future energy costs, this may be an excellent time to invest in a company or an industry that has a very bright future.
Bibliography: Solar Energy by Power Light, John Smith, Inc. Magazine, Nov. 2002
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