Carnegie Mellon researchers call for energy restructuring despite collapse of Enron Corp.

PITTSBURGH, Dec. 5, 2001 – Carnegie Mellon University researchers warn the public and regulators not to focus on the collapse of Enron, the world’s largest trader of electricity and natural gas, as evidence against the restructuring of the electricity industry from monopoly to more competitive models.

Co-Director of the Carnegie Mellon Electricity Industry Center and University Professor Lester Lave, and Center Executive Director Alex Farrell point out that electricity industry restructuring is complicated and that there is more to it than just energy trading. But if it is handled properly, restructuring can bring lower costs, greater customer choice and advanced technologies.

Electric power is a vital necessity to modern life and a key to successful economic growth. The companies that build and operate the country’s electric power system generate four trillion kilowatts of electricity a year, or sales of about $250 billion.

However, restructuring the electricity industry is very complex and requires careful thought and attention. Just a year ago, headlines were focused on California’s problems, with Enron serving as a lightning rod for criticism over the profits being made by electricity generators in that state. Since then, California has backed away from competitive markets. Instead, the state is spending billions of dollars buying power at now-inflated prices. Short-sited responses to Enron’s financial meltdown could be equally harmful, researchers said.

In contrast, restructuring in Pennsylvania has led to lower prices for consumers, an increase in renewable energy production, while keeping reliability at high levels.

Carnegie Mellon researchers say that although Enron’s collapse suggests the need for greater financial and pension fund regulation, it does nothing to indicate that the old monopoly-based system of electricity generation and transmission should be retained.

Bills currently before Congress or soon to be introduced, such as the Energy Deregulation Bill by Sen. Jeff Bingaman (D-N.M.), will generally move the U.S. towards a more open and more regionally-based electricity industry, the direction Carnegie Mellon researchers suggest is best.

Many state regulators and local utility companies also are moving in similar directions. For instance, Duquesne Light in Pittsburgh is expected to join the Pennsylvania-New Jersey-Maryland utility interconnection grid to form the PJM West Regional Transmission Organization to manage the flow of electricity in southwestern Pennsylvania.

Along with electricity restructuring, Carnegie Mellon’s Electricity Industry Center is working on such issues as advanced technologies for clean electricity production and improvements in the design and operation of electricity transmission systems.

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