BELLEVUE, Wash., Aug. 22, 2001 Reed Wasden Research, equity research arm of merchant bank Reed, Wasden & Associates LLC, has just released a comprehensive report on global power sector deregulation entitled, “The Road Less Traveled.”
Worldwide negative attention in the past year on California’s flawed deregulation has showcased the fragility of some power markets and the disastrous financial effect misguided restructuring can have. Yet even as California pours billions of dollars into ensuring the lights stay on for its Hollywood neon and for the Silicon Valley, the European Union is requiring its members to deregulate their power sectors, and other U.S. states are starting restructuring efforts. Deregulation is not a passing trend but an emerging reality that appears to be contagious.
Reed Wasden, which specializes in the study of energy utilities and energy technology, analyzed the electricity deregulation progress in countries that recently embarked on regulatory reforms. Through this investigation, its research analyst team identified best practices for deregulation as well as key lessons that the benefit of hindsight can afford. Its conclusions offer insights into what has worked, what has failed miserably, and why.
After investigating relative success in Argentina and the U.K. and struggles in California and Alberta, Canada, the report found the following critical prerequisites for effective deregulation:
* Strong political will and an independent regulatory body able to enforce a clear regulatory framework.
* Structural separation of generation, transmission, and supply functions.
* Non-discriminatory, open access to the transmission grid to enable wholesale power generation competition and complete access to the distribution network.
* The development of a competitive wholesale power market that sends clear price signals to market participants.
* Liberalization of retail power distribution in stages, and only after deregulation is introduced.
In addition to detailed descriptions and analysis of deregulation efforts in the U.S., Canada, European Union, Japan, U.K., Argentina, Australia, and Norway, the report also discusses the effect of deregulation on the traditional power utility going forward. The introduction of competition into the staid environment of classic utilities requires leaner, savvier operations. Successful companies must not only cut costs, but bundle services and leverage their customer interaction. This requires branding and a customer service focus, two areas many utilities have traditionally neglected.