Deregulation and deep decarbonisation feat. Edgardo Sepulveda

I am joined by Edgardo Sepulveda, a telecoms regulatory economist
with an interest in the electricity sector, focused on
restructuring and privatization. Edgardo provides a comparative and
long-term perspective on the sector. We begin with the first
private companies at the dawn of electrification in the 1880’s and
the populist push to exert some form of public control to curb
abusive pricing, including setting up regulatory commissions to
protect the public interest (in the USA, the New York PSC was set
up in 1907!). Consolidation from this multi-private operator model
to the “traditional” monopoly vertically-integrated firm mostly
occurred after World War II (WWII), when the idea that strategic
sectors should be publicly-owned via state-owned enterprises (SOEs)
drove a series of unifications/nationalizations: Hydro Quebec
(1944); ENDESA in Chile (1945); EDF in France (1946); BEA/CEGB in
UK (1947), etc. These SOEs expanded the grid and drove
electrification. In the US, where public ownership never took off
(with a few exceptions (TVA (1933)), the monopoly investor owned
utilities (IOUs) also expanded, facilitated by rate-of-return (ROR)
economic regulation that guaranteed a stable long-term return on
the vast investments needed to meet demand. Starting in the 1980’s,
neoliberalism and then environmentalism challenged this structure.
Demand, after growing 5% to 6% annually for four decades after
WWII, shrank to less than 1% in the last two decades. The
neoliberal agenda of competition and privatization was kicked off
1980 in Chile under dictatorship, pushed forward by Thatcher in the
UK later in the decade, so that by the California energy crisis in
2000, more than 50% of the USA and 3 out of the 10 provinces in
Canada had “restructured”. The idea was that while distribution and
transmission remained “natural monopolies” and should continue to
be ROR-regulated, generation could be provided competitively and
thus “deregulated.” So many vertically-integrated firms were
“broken up” (restructured) to allow for a generation market to be
created – markets would now set the prices and decide on how much
and where to invest. In parallel, many SOE’s were privatized. So
what is the verdict? Edgardo and Chris discuss the implications of
these two models, for consumers and technologies, in the context of
our need to double or triple generation by 2050 to meet
decarbonization. Some reports that Edgardo refers to during the
podcast, for an even deeper dive: For the USA, Borenstein &
Bushnell argue that evidence shows that the restructuring hope was
mostly hype in terms of performance: “The U.S. Electricity Industry
after 20 Years of Restructuring” (2015)
https://energy.ucdavis.edu/wp-content/uploads/2017/03/07-20-2016-DEEP_WP001.pdf
Given the above-noted discussion, Edgardo and Chris close of the
discussion focusing on nuclear and the available options. A good
nuclear-centric analysis of how liberalized markets under-perform
from an investment perspective is by Koenig and Kee in “Nuclear New
Build - How to Move Forward” (2021)
https://nuclear-economics.com/wp-content/uploads/2021/01/2021-01-atw-NECG.pdf,
in which they also develop one particular proposed solution (there
are many). Edgardo’s Twitter handle is @E_R_Sepulveda Edgardo’s
take on the Ontario electricity sector is here
https://www.policyalternatives.ca/publications/monitor/power-people
and more blogs here:
https://www.progressive-economics.ca/author/edgardo-sepulveda/