Sierra Pacific Power Company has not
done well in the transition to deregulation.
The utility industry as a whole has gone
from a monopoly that provided reliable
electrical and natural gas service.
Once, the industry's common stocks
maintained a stable stock price and provided
consistent dividends for widows and
orphans. Many investors turned to utility
stocks for above-average rates of return
that they couldn't get from bank certificates
of deposit or money market funds.
Citing the success of deregulation in the
airline industry in the 1970s, the telephone
industry in the 1980s, and the cable industry
in the 1990s, the public was convinced
the time had come for the utility industry
make its way into the new millennium.
But take another look at the earlier stories
of deregulation:
Airlines: Certainly airfares dropped
drastically. The growth of new market
entrants led to new low-fare operations.
Competition used to be based on service;
now was based on price. Several of the
established brands were unable to adapt
their operations to the change in the landscape.
TWA, Pan Am, Eastern, Braniff
and many others went bust.
Telephone: AT&T, the lone operator
since the days of Alexander Graham Bell,
was confronted in the courts under
antitrust provisions. MCI drove a wedge
into the marketplace after seeing that the
mighty AT&T was broken up into Baby
Bells which could operated only in local
markets. MCI ran into the heart of
AT&T's earnings long distance.
Competition did enter the market, and the
courts decided that the owners of the
pipeline had to let competitors use their
system networks for a fee. AT&T had to
provide access to the marketplace on their
own systems. The price wars were on!
Long-distance rates plunged, but so did
service. AT&T is no longer an investment
for widows and orphans and MCI is
mined in red ink as part of the Worldcom
mess. Apparently you can't make money at
7 cents per minute.
Cable: What a mess. Service is not a
factor, because you can't get any.
Programming is bad, and you have to buy
stuff you don't want anyway. And the pricing
structure is outrageous. The industry is
mired in fraud.
Utilities: Perhaps this biggest mistake
of all the trips traveled down the deregulation
highway is the mess surrounding
deregulation of the energy markets. The
government's regulators/deregulators have
done a horrible job of attempting to introduce
competition into the energy markets.
What has become painfully obvious is that
all the fears of our educational system in
crisis have come true. When math and
science test scores began to fall in the
1950s, 1960s and 1970s have now caught
up with the fiascoes in the accounting
industry and in the mega
corporations. These people can't add.
The creation of a computer commodities
marketplace run by a consortium
of energy producers damn near crippled
the most powerful country in the world.
The summer of 2001 brought havoc to the
marketplace, rolling blackouts and soaring
prices. The seventh largest economy in the
world (that would be the economy of
California) was being hijacked by companies
artificially driving up the price of
electricity through artificial means.
Companies were bidding against themselves
to drive up prices and sell power
back to the utilities for massive profits in a
matter of seconds. The state's industries
were shut down or capacity was reduced
due to blackouts. The state borrowed heavily
to buy power on the open market.
Well, it wasn't an open market. Companies
such as Enron had created havoc in the
industry. I believe that some of our current
economic malaise is directly attributable to
the fiasco of the attempt to deregulate the
utility industry.
Under the precepts of deregulation
the utility industry could be a producer of
electricity or a distributor, but not both.
Producers could sell power to anyone,
anywhere. Distributors, however, were
stuck only with the areas where they
could service customers.
Essentially prices doubled almost
overnight. Distributors now changed fee
for your connection to the grid and its
billing services. The fee is the same as
your cost of power. (Look at your
SPPCO bill and note the fee and the cost
of kilowatt hours.) Sierra Pacific Power
was embracing deregulation, preparing to
sell its power-generation facilities. Those
plans are now on hold. The trick is not
own the pipe - but rather to own what
flows through the pipe.
The other factor is that companies
want to be net producers of power.
SPPCO should look at becoming a
net producer of electricity. (Produce more
electricity than it needs for its own customers
and sell the balance on the "open"
market.) Not only are the non-traditional
methods of wind and solar energy a
possibility, but SPPCO should conduct a
profit/loss study on developing highcapacity
nuclear power generating facilities
in rural central Nevada. Not only
would these facilities produce inexpensive
electricity, but the remaining power
could be sold to neighboring states.
These energy farms would create construction
jobs, increase tax revenues and
generate power for Nevada industry and
consumers.
Deregulation for the utility industry
seems like a method of ruining a
perfectly good industry. The industry
provided a consistent source of energy
at a fair price for decades. The
industry was also a consistent source
of income to investors. These energy
farms would add another level of
diversification to our economy and
assist in providing the energy needs
for years to come.
You've heard of Florida Orange Juice?
Now it's time to brand Nevada Juice.
