Foes Become Friends Over Electricity Deregulation

Corporations relish prospect of choosing cheapest power supplier

AS the electric-power industry braces for deregulation, it has found an unlikely ally: consumer groups.

Traditionally, utilities and consumer groups have fought over rate hikes and other regulatory matters. Now they are teaming up against state regulatory agencies -- especially in Texas and California -- to slow deregulation and ''retail wheeling.''

Retail wheeling would allow customers to choose their electricity provider in the same way they pick a long-distance telephone company. Most large corporations favor retail wheeling as a way to foster competition and reduce electricity rates. Low-cost power producers also approve, hoping to gain market share.

But some Texas and California utilities are worried that local independent power producers and low-cost utilities from other states will be allowed to move in and steal their biggest industrial clients. If that happens, utilities will be forced to raise rates for residential and small commercial users, consumer groups suspect.

Holding the bag

''You can't allow large customers to strike their own deals and leave everyone else holding the bag,'' says Lori Jablonski of the Sacramento-based Center for Energy Efficiency and Renewable Technologies. ''That's not competition that is beneficial to all Californians.''

With hundreds of billions of dollars invested in transmission lines, aging power plants, and distribution equipment, some utilities fear that their investors will be stuck paying off these so-called ''stranded investments.'' Currently, utilities are permitted to pass along operating costs and some fixed costs. Most power companies are limited to selling electricity to designated areas by regulators. And their customers, such as a manufacturing plant, can only buy from one source.

Labor and environmental groups are also concerned about retail wheeling, Ms. Jablonski says. Since last April, when the California Public Utilities Commission announced that it wanted to move toward retail wheeling, these groups have been scrambling to come up with plans to protect small users while letting deregulation move forward.

In Austin, Texas, utility lobbyists sound much like consumer advocates in California. ''We want to make sure it's not our residential ratepayers that are going to get hit by this,'' says DeAnna Smith, of Central and South West Corporation, which operates electric utilities in Texas, Oklahoma, Louisiana, and Arkansas. ''When you have large numbers of industrial customers that are going to leave the system, somebody has to take up the slack.''

Consumer groups and utilities do differ on nuclear power, which could be priced out of the market. ''Nuclear plants just aren't going to be competitive with gas-fired or coal-fired plants,'' says Mike Williams, of the Texas Public Power Association.

Mr. Williams says the utilities that own nuclear plants will be pressured to shut down the plants. Consumer groups fear utilities will try to saddle residential ratepayers with the decommissioning costs. In California, the decommissioning costs associated with the San Onofre Unit 1 nuclear plant have become a major issue as state regulators open the market to competitors.

Billions at stake

Billions of dollars in profits are at stake as the power industry gets transformed by regulators. ''Next to making war, the next most expensive undertaking in society is making electricity,'' says William Spratley, an industry consultant. He says control of power lines and distribution stations is the key question.

The distribution system, he adds, is a ''bottleneck monopoly. There are lots of ways to get phone service: through the copper wire, cable-TV wire, satellite, or by cellular transmission. With electric power, there's only one way and there's a huge investment in that transmission system.''

Some utilities have talked of selling their transmission lines to a private company that could then lease them to users, in much the same way that oil and gas pipeline operators lease their facilities. But deciding who controls the lines and how stranded investments will be paid for are critical issues that must be resolved before retail wheeling gets off the ground, say industry analysts.

No ones knows how long the uneasy alliance between consumer groups and utilities will last. In Texas, the two groups have co-written a letter to state officials, urging them to proceed slowly on retail wheeling.

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