During the 1970s, countries around the world were privatizing their nationalized power systems at about the time that the U.S. government was ordering that transmission facilities in the U.S. be made available to nonutility generators (NUG). This privatization (Table 1), coupled with scant regulation on the part of the governments involved, created the environment for an unbundled power system where transmission lines would be available as common carriers for independent power producers (IPP) who invested in private power facilities (Table 2). In this context, transmission access became the practice in many countries at a time when it was first being debated in the U.S.
Borrowing from overseas experience, a common theme appeared in all of the discussions in the U.S. state legislatures and public utility commissions. This theme was the recognition that geographic power pools already existed and could be used as a foundation for future restructuring that would incorporate the principles of open access and wheeling. The reorganization of the power pools would rely on the separation of the pool from generation, transmission and distribution facilities. These entities would be known as GenCos, individual companies that generate power; PoolCos, separate companies that buy and sell power; TransCos, companies that transmit power at transmission voltages; and DisCos, companies that distribute power and bill the customer.
Transmission access is narrowly defined in the U.S. as the ability for NUGs and IPPs to connect to the nationwide power transmission network. On a worldwide basis, the definition for access may be expanded by noting that transmission access can properly describe the physical capability of acquiring electrical service if the transmission facility for delivery is available for the purpose. Thus, transmission access can be defined, broadly, as the ability to access power supplies when transmission facilities are made available. This broader definition becomes all-inclusive by embracing existing transmission lines, as in the developed industrial countries, and those transmission lines that could be built for serving the developing countries.
Non-utility Generator Economics The burden of finding money for building expensive power facilities, especially generating plants, places the borrowing country in an economic straight jacket since lenders impose rigid constraints on loans that are made for these purposes. The payment of interest charges, alone, restricts the country in its ability to fully realize the benefits of the new power since so much of its income is already earmarked for retiring the debt incurred to build the power facilities. Under these circumstances, privat-izing the industry could help avoid the great debt that would be incurred if the power facilities remained under government control. The scenario that evolves under privatization allows independent companies to organize to build and run the power system with no governmental investment. The economic and social benefits are, thereby, realized by virtue of the electrification process, and the funds that normally would have been earmarked for debt repayment can be used for other social purposes within the country.
In the developed, industrial counties, a similar circumstance has emerged. Electric utilities have always known that any time an investment in facilities could be avoided, they would receive a measurable economic benefit, subject to disallowances by the state public utility commission. Now, for the first time in their history, electric utilities are looking with favor on IPPs, who can relieve utilities of the time-consuming and costly task of obtaining regulatory approval for a new plant that would require, when approved, further borrowing to finance its construction.
Part and parcel of this new philosophy is the need to provide wheeling capacity for transporting the privately generated power to the point of use. Within the world community, transmission access and wheeling have become the vehicles for realizing the economic benefits of conservation as a consequence of the built-in diversity of supply where time differences between systems make possible the transportation of peaking power from a system at a low level of utilization to a remote system in another geographic area whose demand is high at the time.
International Connections Proposals for interconnections among the countries of the world have been proposed for many years as a means for tapping sources of water power that exist in many areas. A report by ABB Power Systems, Ludvika, Sweden, noted that only about 13% of the world's available hydropower is being used for power production. The utilization of this hydro capability simultaneously uses resources presently wasted and generates cash for the country that owns the resource. The income-producing potential for the population is significant in terms of providing jobs, schools, hospitals, housing and, consequently, higher standards of living.
According to the Global Energy Network International (GENI), studies have shown that a negative correlation exists between per-capita electrical use and population growth. For underdeveloped countries, a reduction in population would reinforce their ability to cope with the social programs that are necessary for their citizens.
Transmission-Access Proposals An IEEE report on global interconnections discussed the Zaire River Inga Hydroelectric Project in central Africa, one of the major hydrographic systems in the world. The transmission statistics indicate possible lines from Zaire to Khartoum, with extensions to Cairo and Turkey as well as to Tunis. Also, a separate line is envisioned from Zaire to Nigeria with an extension to Morocco. The intriguing aspect of this project would be the possibility of using underwater cable links from Morocco to Spain and from Tunis to Italy.
Hydro power projects in South America presently are using about 10% of their full potential. The large potential of untapped hydropower in South America has been viewed as another source of economical electricity for export to Central and North America, especially from the Amazon region. Although interconnections in Central America are not a new subject, the present concept involves a long transmission corridor that would span six countries and link Panama to Guatemala and possibly interconnecting to North America. International connections in the western hemisphere are, of course, not new. The interconnections between Canada and the U.S., which began in the 1950s, have benefited both Canadian and U.S. systems. The systems cooperated in power pools to operate these separate systems in a unified manner to ensure reliability and low-cost power.
While interconnecting large systems is economically advantageous for the systems involved, an American Power Conference paper by Sargent & Lundy et al, discussed the importance of interconnections for wheeling power among small power systems. However, according to the paper, the interconnection of two small, isolated power systems on the island of Borneo in Southeast Asia (Fig. 1) benefited both systems. The power systems of Sarawak and West Kalimantan produced cost-benefit ratios of 3.1 to 4.3 despite the 140 mi (225 km) distance separating the two systems.
The gist of the movement within the power engineering community is, clearly, to proceed with development of the world's hydroelectric resources to provide the kind of transmission access, and its associated wheeling requirements, to displace fossil-fuel generation with renewable energy sources. The list of possible projects is impressive. The New Scientist, published in the UK, noted last July that projects in Siberia could transmit energy to North America via an underwater cable in the Bering Strait. In addition, power from these hydro plants could be exported to industrial centers in China, Japan and Korea. Other possibilities include cross-border links between Thailand and Malaysia, a transmission connection between Nepal and India, and a link between Israel and Jordan. In the long run, prospects for peace in the Middle East could be enhanced if interconnections were made between Israel and all of the Arab countries that surround it. This kind of transmission access would provide economic support for the entire region and would be based on a commitment to cooperate in its successful implementation.
The Developed Countries All of the large projects discussed for transporting power across vast distances from remote areas in the world carry with them a need for international cooperation with financing from such bodies as the World Bank. Within the industrial countries of the West, such transmission access already exists, tying one country to another. For example, the historic tie between France and the UK provides interchange across the English Channel. Indeed, the densest network of power connections can be found in Europe, where the electric systems have been joined for about 50 years. The overall system, known as the Union for the Cooperation of Production and Transmission of Electricity, is connected by ac links on the greater part of the continent. The system is tied by dc to Scandinavia via Denmark and to the UK via the channel link. During the 1980s, generated power in Europe increased by 50% while trade in electricity increased by 100%. Austria, France and Switzerland export more than 10% of their production, while Finland, Italy and Portugal import more than 10% of their requirements. Germany exports power during off-peak hours and imports during peak periods.
The UK, Canada and the U.S. The concept of open access, which implies the availability of privately owned transmission to all comers, is already in place in the UK and the U.S., where rules are being formulated that will govern the competition for facilities and customers. The deregulation that has already taken place in the UK sheds some light on the important parameters that need to be addressed, such as contracts and billing procedures. The UK system was never regulated in the same way as were the multiplicity of systems in the U.S. because the UK system was government owned, providing a built-in constraint. This self regulation was sorely tested during the oil embargo of the 1970s when oil prices tripled and drove up the cost of power production. In the UK, coal suppliers matched OPEC's oil embargo with their own interruption of coal deliveries. These interruptions had the same affect on power costs as did the more expensive oil. These destabilizing factors were the key to the move to privatize the UK electric utility industry.
The newly privatized transmission system is beset by problems as it determines equitable contractual schemes for existing and incremental supplies, while seeking an efficient production and transmission system. In this process, new firms will retain significant monopoly power. The generating portion will be split between private and public entities. The transmission sector will remain a monopoly as will individual area boards, which distribute the power. The regulator will settle disputes among competitors who are all trying to carve out a piece of the business pie for themselves.
It is in this disputatious environment that the procedures reside for making the contracts and for providing accurate billing. The competition for large customers and for self-generating opportunities is based on the break up of generation, transmission and distribution into separately owned, competing companies.
The government's approach is to encourage new generating companies and to separate the transmission system in a way that facilitates competition. All of this development is based on the premise that transmission access is assured.
Because of the large rate increases that were necessary to cover its investment in nuclear facilities, Ontario Hydro has promised to move toward partial privatization. The proposal calls for generation to be sold to five competing companies. Transmission and, initially, distribution would remain in government hands. There are calls for market-based pricing and open transmission access. Pressure for privatization is being driven by the fear that industrial accounts will go elsewhere because of the high cost of energy being charged by Ontario Hydro. The estimated value of assets, which could be realized if sold, is CDN$7.5 billion, which would help reduce the province's debt.
In the U.S., the California Public Utilities Commission (CPUC) ruled that the NUGs and the IPPs must be given the opportunity to use existing lines in order to provide for a diversity of supply independent of the existing electric utilities. The ruling was discussed and argued for several years. The Federal Energy Regulatory Commission (FERC) finally ruled that the CPUC could not force the state's electric utilities to pay more for power from the independents than it would cost to generate their own.
Although the contracts already signed at the behest of the CPUC are subject to renegotiation between the utilities and the independents, the concept of open access appears to be an accepted principle within the state. This development is not difficult to understand, since purchasing power benefits utilities who do not now have to invest large amounts of money to build new generation.
The key elements in the restructuring process in California rely on open access to ensure that customers will have choices in the future. These elements include a non-discriminatory provision of transmission and distribution service, which would still be available to customers who choose to remain with their present supplier. Prices for these customers would be based on performance instead of cost of service. Also, it is expected that unbundling will be expanded and direct-access customers will pay their fair share of costs for past, prudent investments made by the utility.
Across the country in Massachusetts, Boston Edison Co. has proposed a plan to provide for customer choice. Known as the E Plan, all Edison customers will be given the opportunity to become familiar with the deregulated market. Customers will be sent bills showing the simulated market price of producing their electricity and a separate charge for delivery. The market price will be shown as an available monthly charge for all others.
Customers are expected to benefit from new performance incentives that would tie delivery rates to service quality. In addition to California and Massachusetts, other states are also examining the feasibility of ordering transmission access and wheeling provisions (See sidebar on page 51).
The Future Changing the organizational structure among electric utilities worldwide is considered to be the logical way to provide choice at the lowest cost to the customer. In addition, for many countries, the move to privatization (see sidebar on page 57) provides for significant benefits, such as cash from sales of power facilities and an infusion of foreign investment for expansion and modernization. Of course, it remains to be seen whether these expectations will be fulfilled.
U.S. history has shown that the deregulation of natural gas was accompanied by many financial problems for suppliers and pipe-line operators; deregulation of telephone systems resulted in lower costs for long-distance services, but significantly higher costs for local services; deregulation of the trucking industry resulted in the demise of many companies in the business; and deregulation of the airline industry resulted in bankrupting many carriers and the significant decline in services by the survivors. In every case, tens of thousands of workers lost jobs.
In anticipation of deregulation, the electric utility industry has already begun restructuring its operations and has either laid off workers or has removed workers through early retirement programs. The question that is paramount in this scenario is whether future reliability of service will be jeopardized. TDW
U.S. States Considering Retail Competition California Expansive proposal to give all electric consumers in the state "direct access" to the competitive generation market. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, 194-04-032, April 20, 1994 (CPUC).
Connecticut Generic proceeding initiated by the Connecticut Department of Public Utility Commission (CDPUC) to examine whether the state should permit retail electric wheeling. Initial findings are expected by the end of the summer. Re Retail Electric Transmission Service, Docket No. 93-09-29, Jan. 27, 1994 (CDPUC).
Illinois Announcement by resolution that the commission will begin examining changes in the structure of the electric energy industry. Re Changes in the Structure of the Electric Energy Industry, No. 94-R1 (April 20, 1994).
Michigan Commission approves a limited experimental wheeling program for Consumers Power Co. and Detroit Edison Co. Re Association of Businesses Advocating Tariff Equity, 150 PUR4th 409 (Michigan Public Service Commission 1994).
Nevada State legislature passes a limited retail wheeling statute (S.B. 231) designed to assist economic development in the state.
Ohio Retail wheeling legislation introduced in the state legislature as H.B. 676.
Texas Commission finds that the self-service wheeling - where the entity providing the power also consumes the power at another site - was a legitimate option in the resource planning process. Re Houston Light & Power Co., Docket No. 12138, Dec. 22, 1993 (Texas Public Utilities Commission)
Utah Commission found a proposal to consider retail wheeling as a demand-side resource inappropriate in an IRP docket, but asked parties for further comment on the issue. Re Pacificorp., No. 90-2035-01, June 1, 1993 (Utah Public Service Commission).
Vermont Commission examined cost-shifting among customer classes that could occur as a result of retail wheeling arrangements. Re Citizens Utilities Co., Docket NO. 5625, March 28, 1994 (Vermont Public Service Board)
Wisconsin Utilities have proposed an inquiry with favorable commission response to investigate electric utility industry restructuring in the state.U.S. States Considering Retail Competition
Privatization Initiatives Occurring Throughout the World Western Europe
Germany The East German electric utility privatized its assets in the early 1990s.
United Kingdom Beginning in 1990, electric power resources were vertically disassembled into two generation companies, a transmission grid and 12 regional, privatized distribution companies.
Italy In the process of privatizing ENEL, the state electricity corporation.
Norway A leader in restructuring the power industry, but not in divestiture privatization. Has had retail wheeling for more than five years.
Central and Eastern Europe
Hungary Minister of Trade and Industry favors privatization of state-owned utilities to realize an infusion of foreign capital while reducing the national debt.
Poland Minister of Industry states that generation and distribution will be privatized with transmission retaining state ownership.
Asia and the Pacific Rim
Australia Preparations for deregulation and privat-ization have been initiated in the state of Victoria, followed by a stated intention by the national government to do the same.
New Zealand Since 1987 has corporatized generation and transmission, creating the Electricity Corp. of New Zealand (ECNZ). Generation will be split into two companies and the transmission grid remains state owned as Trans Power.
Singapore Will create regulated holding companies that will buy electric facilities from the government.
Taiwan Government owned system. Studies are under way to privatize.
Thailand Is encouraging the development of independent power producers to move the country to a more deregulated industry.
Argentina Generation is largely deregulated, transmission is a regulated public service and distribution is treated as a local utility. Deregulation was driven by the need to reduce federal debt and to attract foreign investment.
Bolivia The state-owned energy company has been sold to three U.S. firms, each of whom owns 50% of a specific facility. The remainder is held in trust for a pension fund to be distributed to Bolivians over the age of 21.
Brazil Plans are underway to sell much of its energy sector by 1998. Because of its huge potential market with anticipated capacity additions of 22,000 MW through the year 2004, Brazil is considered the most attractive area for privatization investment.
Chile Probably the most thoroughly restructured system in the Western Hemisphere with most of its electricity-producing assets privately held.
Peru The Lima utility, ElectroLima, was split into two distribution firms and one generation firm. Other Peruvian power assets will be sold in open bidding.
Venezuela Privatization is presently deferred, although the government has established its intent to sell its power assets.