Electric Utility Deregulation May Bring Innovation

September 03, 1997

ITHACA, N.Y. -- Twenty years ago, when the Public Utility Regulatory Policy Act (PURPA) was written and large central-station steam-turbine facilities were the best way to generate electricity, no one expected the technological development of the small-scale, super-efficient, combined-cycle gas turbines that independent power producers and many utilities use today.

Now that deregulation is increasing competition in the power generation part of the electric utility industry and is beginning to offer consumers a choice through their local distribution companies, innovation lightning could strike again, a Cornell University economist and engineer predicts. New technologies, new materials and a renewed notion of public service, according to Richard E. Schuler, could give consumers "corner store access" to competitive electricity, communications, entertainment and information services -- all in one super cable.

Schuler, who is a Cornell professor of economics and of civil and environmental engineering as well as the director of the Cornell Institute for Public Affairs, made his prediction to the Institute of Electrical and Electronics Engineers (IEEE). Speaking June 11 in Washington, D.C., to an IEEE Technology Policy Council symposium, Schuler envisioned "a far richer variety of business types and forms" and "a broader diversity of commercial and technological innovation" as electric utility deregulation reaches the consumer interface.

Unregulated competition for utility customers is nothing new, noted Schuler, who served as a member of the New York State Public Service Commission from 1981 to 1983. There were once 373 independent electric systems in New York state -- and eight separate electric utilities serving New York City -- many vying for each other's customers at their service borders, he recalled. But technological advances in generation and electric transmission equipment allowed the amalgamation of small entities into the mega-systems that may one again be realigned in response to competition.

"It is the unimagined innovations that offer the greatest potential social rewards from a transition to markets," Schuler told the IEEE council symposium. "One hint of possible opportunities is the unforeseen technological response in the U.S. to the enactment of PURPA. By providing manufacturers with a steady market for small combustion turbines, a technology that had been on the drawing board for over 50 years, the combined-cycle gas turbine was brought to commercial fruition. The result today is a generating technology with lower capital costs and greater thermal efficiencies than the state-of-the-art, large central station steam turbine facility of 20 years ago."

Schuler said he dreads as much as the next consumer the annoying dinner-time calls from telemarketers trying to get him to switch his electricity supplier. Yet the "local wires" level of utilities may be the place to watch for unimagined innovation, Schuler said. If individual local telephone, cable television, electricity and Internet access companies were allowed to package and sell all once-separated services, perhaps scale economies would lower the cost of maintenance, metering and billing, he suggested.

While this new local super-monopoly might remain regulated, it would act as a "corner store" offering consumers a wide competitive array of communication, information and energy services. This new institution could prompt development of new materials that combine conductors for all these services in one multi-talented line, Schuler predicted. And of course, new materials will require new methods for installing and maintaining all that conduit, but the economist-engineer isn't going too far out on the limb.

"Under a competitive scenario, it is important to resist predictions about the future shape of the delivery systems," he said. "Competition leads to technological innovations in very unpredictable ways."

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EDITORS: Prof. Schuler's report to the IEEE council, "Deregulating Electricity Markets: Why are We Pulling the Plug? How And for Whom?" is available from the Cornell News Service at (607) 255-9736 or cunews@cornell.edu.

Cornell University

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