Posted by: marilynshowalter | June 21, 2007

Terminology Ambiguity: “Deregulation” and “Competition”

As part of today’s unveiling of potential reforms of organized regional electricity markets, FERC Chairman Joe Kelliher includes a brief but useful discussion of the terms “deregulation” and “competition.” These two words are indeed vexing, because of the variation in their literal, technical, legal, and popular meanings. As a result, their use can carry considerable ambiguity, confusion, and exasperation.

The popular meaning of “deregulation,” in this context, is price-deregulation. That is, electricity prices are not specifically and precisely set in a tariff approved by a regulator. When we say the trucking, airline, and telecommunications industries have been “deregulated,” we mean that prices aren’t set by a regulator, not that those industries aren’t otherwise regulated. Similarly, the food industry is heavily regulated but prices are not.

Defining “deregulation” more literally as “the absence of regulation,” the Chairman accurately points out that “wholesale markets and wholesale power sales have never been unregulated. The character of our regulation has changed, but we never stopped regulating.” In some states, the phrase “alternative form of regulation” has been used to describe the requirements for competition that must be met before retail prices are deregulated.

Can FERC’s new potential regulations (or the existing ones) ensure sufficient conditions that prices can be “deregulated” and still be “just and reasonable”? That’s the substantive, fundamental and on-going question.

The term “competition” is equally fraught. In the popular sense, it usually means price-deregulation (see above), regardless of whether effective competition is actually present. Economists may use the term more precisely and technically to mean there is effective competition in a market, or they might use it to mean a market design that it supposed to achieve effective competition. Additionally, as a recent statement by APPA and ELCON points out, there can be many forms of competition, and concerns with one form or design need not imply opposition to all forms. Competitive procurement by retail-cost-based-regulated utilities with a self-build option, for example, or active bi-lateral markets in retail-traditionally-regulated regions, may not raise the same concerns as organized regions with single-clearing-price auctions, locational marginal pricing and capacity markets.

We could all try to be more precise, by always using stringed phrases like the ones above, but we would likely lose our audience, especially among the non-technical crowd. Other short-hand terms, like “restructuring,” carry their own definitional issues. Probably the best we can do, as communicators, is make clear what we mean, through context and definitions. As readers and listeners, we can pay close attention to context and not deliberately misinterpret it–in order get on to the deeply important substance that these terms, in all their ambiguity, cover.

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Responses

  1. On his <a href=”http://pulpnetwork.blogspot.com/2007/06/nonregulated-sellers-of-electricity.html” rel=”nofollow”>blog</a>, Gerry Norlander points out that FERC has coined a new term, “market regulated,” to replace “non-regulated.” If the market fails to discipline prices, due to market power, would that be “market non-regulated”?


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