Electric Utility Deregulation Could Prompt 'Unimagined Innovation' And 'Corner-Store Competition,' Cornell Economist Predicts

Now that deregulation is increasing competition in the power generationpart of the electric utility industry and is beginning to offer consumers achoice through their local distribution companies, innovation lightningcould 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 informationservices -- all in one super cable.

Schuler, who is a Cornell professor of economics and of civil andenvironmental engineering  as well as the director of the Cornell Institutefor Public Affairs, made his prediction to the Institute of Electrical andElectronics Engineers (IEEE).  Speaking June 11 in Washington, D.C., to anIEEE Technology Policy Council symposium, Schuler envisioned "a far richervariety of business types and forms" and "a broader diversity of commercialand technological innovation" as electric utility deregulation reaches theconsumer interface.

Unregulated competition for utility customers is nothing new, notedSchuler, who served as a member of the New York State Public ServiceCommission from 1981 to 1983.  There were once 373 independent electricsystems in New York state -- and eight separate electric utilities servingNew York City -- many vying for each other's customers at their serviceborders, he recalled.  But technological advances in generation andelectric transmission equipment allowed the amalgamation of small entitiesinto the mega-systems that may one again be realigned in response tocompetition.

"It is the unimagined innovations that offer the greatest potential socialrewards from a transition to markets," Schuler told the IEEE councilsymposium.  "One hint of possible opportunities is the unforeseentechnological response in the U.S. to the enactment of PURPA.  By providingmanufacturers with a steady market for small combustion turbines, atechnology that had been on the drawing board for over 50 years, thecombined-cycle gas turbine was brought to commercial fruition.  The resulttoday is a generating technology with lower capital costs and greaterthermal efficiencies than the state-of-the-art, large central station steamturbine facility of 20 years ago."

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

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

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

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EDITORS:  Prof. Schuler's report to the IEEE council, "DeregulatingElectricity Markets:  Why are We Pulling the Plug? How And for Whom?" isavailable from the Cornell News Service at (607) 255-9736  or