It’s been suggested that Luminant”s recent decision to retire or mothball 12 older gas-fired plants is just another example of the invigorating powers of that tonic known as electric deregulation. The plants in question are all 40 and 50 years old. Under the deregulation-cures-what-ails-you argument, it”s competitive forces that prompted Luminant to mothball them. That decision, in turn, will result in new efficiency gains for the market.

But how will those gains ever benefit consumers?

Remember that under wholesale deregulation, generators have no incentive to pursue efficiencies that are so great as to lower the overall market price of power. That just eats into their profits. And so to the extent that the new efficiency gains do not affect market price, then the financial benefits go the generator, not the consumer.

Similarly, deregulation encourages generators to keep operating inefficient clunkers as long as the market price stays high enough. Think of the example of a slum lord that lets his apartments deteriorate so long as he can keep renting them. Perhaps at some point the property will fall down around his tenants’ ears — but until that day comes, those aging apartments continue generating profits.

So the question becomes – what would have happened to inefficient plants under a regulated system? In Luminant’s case, if they really were obsolete “museum pieces” one could imagine the PUC finding the expense of their continued upkeep to be imprudent.

The end result: under regulation — they probably would have been mothballed.

— R.A. Dyer

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