Former Oklahoma Corporation Commission
energy chief Ken Zimmerman
Q: What is deregulation?
A: The term deregulation is a misnomer. They're just changing the form of regulation. Most electric utilities are regulated by state commissions. Most commissions have many options on how to set up pricing of electric services.
One option is a competitive market, which means you try to find a way to allow other providers of services to provide services aside from the utility itself. People started looking at that as a possibility. That's still regulated in that you can't set the price anywhere you want it to be. It still goes through a regulatory process.
There are two kinds of things we can get when you buy electricity: we can buy the kilowatt-hours that come out of the plant, or we can buy the plant itself. Most states set up a competitive market to buy the kilowatt-hours. They have allowed other plants to sell kilowatt-hours to customers, sometimes directly by signing up a customer and sometimes indirectly by selling kilowatt-hours to the utility, which them sends them to customers.
Some states set up a plant sale through competitive bidding. They set it up in a way to have the plant provide the services and also provide that the plant through a competitive bidding process. That was the minority. Most states went with the energy part.
Q: I understand you are largely responsible for blocking deregulation in Oklahoma. What happened?
A: I didn't do most of the work. We had a very good team. I was just the guy who talked all the time.
We looked at whether restructured regulation would benefit Oklahoma or not, and if it were to change, would Oklahomans benefit. Any time you would be getting power from other areas, you have to consider what their costs are and what that would do to power in that state.
We concluded that if Oklahoma did that, it would increase the cost of power in the state because the cost of those providers was more expensive than what we had in the state.
Q: How did your effort affect Oklahoma consumers?
A: Initially it stopped us from having a price rise. If we would have gone that direction, it would have been an increase in prices. I don't know how much of an increase it would have been, but I suspect it would have been quite dramatic. Bills could have gone up 100 or 200 percent. It would have been quite noticeable. Most regulators see that kind of rate shock as totally unacceptable.
Also, it gave us time to fix the real problems. There were serious problems with the existing system. One problem was that the states were trying to figure out how to pay for generation capacity. If a utility built a gas-fired plant in 1971, it cost $50 million. In 1981, it cost $400 million.
People were trying to wrestle with how we could afford that. That was a big problem we were trying to deal with. Delaying restructuring gave us time to deal with that. The regional transmission authority helped with that because it helped control the costs, helped us do better planning, so we could figure out what to do next and not have as many errors. We were expecting serious reliability problems in the late 1990s and early 2000s.
Q: What other positive changes came out of the regulation discussions?
A: We were able to ask good questions, focusing on meeting concerns. That allowed for building of transmission lines. We managed to get those on the table and find some solution. They are not totally solved, and probably never will be. But at least we are going to the table and doing something about those issues. Over the years, even though Oklahoma did not go the way of Texas, we did join the Southwest Power Pool, which became a regional transmission organization. Some utilities buy power from providers in that market, but the state of Oklahoma is not regulated so that those producers can sell directly to Oklahoma. But we did buy into the fact that having a regional transmission organization is beneficial in other ways than providing energy.
For example, one of the biggest problems any state faces is how to maintain reliability in a system. You build enough plants to have extra capacity so in case of an emergency, you have enough power to cover an emergency if a plant goes down. It is very expensive to build backup generation. One benefit of the regional transmission authority is that the utilities can share that cost. Some capacity in Arkansas not being used can be used to support Oklahoma in an emergency and vice versa.
We also got centralized planning. One of the problems you face in building these very complex systems is that you need to know what decisions to make in terms of what to build and when to build it. Regional planning provides utilities with a lot more opportunity not only to build the right thing, but also to save money in building the right thing.
Q: Is deregulation law in Oklahoma?
A: SB500, that has been on the books, but is under hold, which is the case in a lot of states.
Restructuring was a really big deal until California imploded in the early 2000s. That pretty much put a hold on almost every state. Three-quarters of states going down that road were put on hold.
California customers literally had to pay billions of extra dollars for energy. Not all of that was the result of the restructuring law. Some of it was bad management and bad timing. But when that happened, most states put their plans on hold. It was a response to a very bad situation.
Adam Wilmoth, Energy Editor