As Policymakers Fight Over Paradigms, a Crisis Looms

by Richard Lehfeldt

In “The Adventure of the Final Problem,” Arthur Conan Doyle both introduced and did away with Sherlock Holmes’ arch nemesis, the criminal mastermind Professor Moriarty. The 1893 story is essentially a long chase scene, culminating in the apparent deaths of both Holmes and Moriarty, who hurtle over the deadly Reichenbach Falls, locked in mortal combat.

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Conan Doyle’s sole objective in writing “The Final Problem” was to kill off Sherlock Holmes, a character about whom he had tired of writing. Holmes’ fans would have none of it and Conan Doyle was forced several years later to resurrect his most famous character. He continued churning out Holmes tales until his death.

“Wars” in the electricity world resemble the warring archetypes in the process of hurling themselves off the Reichenbach Falls. The two most traveled battlegrounds of the war—choice of fuels and choice of regulatory model—have devolved into a stalemate that has eroded generation supply margins and narrowed choices for the investments necessary to replenish those margins.

On the fuels front, the entire sector eagerly awaits resolution of the U.S. debate on climate change. Investment choices will for the most part be frozen with regard to all fuels until the rules of the road for (and full costs of) coal-fired generation are known. Until then, fossil-fired plant development will continue to lurch forward in a perilous zone somewhere between the difficult and the impossible.

Nor has nuclear power been spared the costs of uncertainty. Until the costs of alternatives to nuclear power can be assessed based on a finalized domestic climate change regime, there will be no yardstick to gauge the relative benefits of the nuclear alternative.

On the regulatory front, the uncertainty may be even costlier. The United States appears to be paralyzed between the utility, rate-based regulatory model of power plant development that was in place for most of the past century, and the competitive model that came of age toward the end of that century. While neither model is perfect, the current deadlock between the paradigms is demonstrably worse, with the “pure marketers” disparaging anything that even resembles regulation, and the old-line utilities casting aspersions on the competitive model that are more fitting to gutter politics than a policy debate about a vital national commodity.

There is a vast but largely unexplored middle ground between the pure regulatory model and the pure competitive model. For example, until the birth of the environmental movement in the 1970s, choices about power plant construction tended to focus on load forecasts and siting; fuel choices were dictated for the most part by what was available, rather than by environmental concerns.

Perhaps a “purer” market-oriented approach could be utilized for transactions and investments where the wholesale buyer is indifferent to the fuel source of the electricity it needs, and something closer to integrated resource planning could be utilized where the buyer demands a particular environmental profile for its power needs. For instance, where a load-serving entity or other wholesale buyer needs not just “1,000 MW of capacity,” but “1,000 MW of nuclear capacity,” or “1,000 MW of capacity with “ËœX’ environmental profile,” that opportunity should be put out to competitive bidding, to ensure that both the buyer and electric ratepayers are getting the best possible pricing for the desired commodity.

Wars of paradigms tend to end the way Holmes and Moriarty’s war ended. The nation’s energy policy debate is in need of a Conan Doyle to prevent that outcome. Without such a rescue, today’s waning reserve margins will burgeon into tomorrow’s electricity shortages—an unimaginable and unacceptable result in the most prosperous country in the world.

Author

Richard Lehfeldt is a partner at Dickstein Shapiro LLP. He can be reached at lehfeldtr@dicksteinshapiro.com.

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