Congress May Give Electricity Market A Liberating Nudge

It may not be long before famous actresses are offering TV viewers electricity for a "dime a kilowatt hour" - or maybe for a nickel.

Electricity deregulation is gaining momentum. By one reckoning, 47 states are working on or considering plans to allow electricity suppliers to compete for customers the same way long-distance telephone companies do. New Hampshire and Illinois already have pilot programs under way. Massachusetts, California, and Pennsylvania are also getting into the act.

Still, it could be a long time before most states actually deregulate electricity, and that's what worries some in Congress. They want consumers to reap the benefits of ending electric monopolies as soon as possible - setting a specific date by which states must act. A study by the conservative group Citizens for a Sound Economy claims competition could save the average American household $216 a year.

"Competition lowers prices, competition improves productivity, and monopolies are always inefficient and expensive - always. That's not opinion, that's fact," Rep. Thomas Bliley (R) of Virginia said in a speech last week.

Such talk has many utility companies - especially those hampered by high fixed costs - concerned.

Members of the Edison Electric Institute (EEI), a trade association representing many large, investor-owned utilities are especially worried about so-called stranded costs. They have spent money to build power plants under current state rules that guarantee them a return on their investment. If deregulation laws leave utilities holding the bag for these expenses, many of them might be unable to compete and could go bankrupt under their debts.

And some consumer advocates warn that deregulation could put price-cutting ahead of reliability of power supply.

"The states are not dragging their feet," says David Owens, senior vice president of the EEI. "State regulators are saying, 'We're doing OK. We don't need Congress's help.' "

Mr. Bliley, chairman of the House Commerce Committee, which will consider any deregulation proposal, disagrees. "The states should determine how to deregulate, but not whether. And the states couldn't do the job even if they wanted to, because the transmission lines go across state lines."

Referring to the Citizens for a Sound Economy study, Rep. Dan Schaefer (R) of Colorado says deregulation's savings "could mean nearly $200 billion more economic growth annually, more than 1 million new jobs, increased productivity, higher wages, and a big boost to the competitiveness of American-manufactured goods."

While he agrees there will be benefits, Mr. Owens says the study "exaggerates the level of savings and understates the potential costs."

Mr. Schaefer, who chairs the Energy and Power Subcommittee, introduced a bill last summer that has become central to the debate. He plans to submit a revised version in the next Congress. Other proposals will likely come from Rep. Tom DeLay (R) of Texas, Rep. Edward Markey (D) of Massachusetts, and Sens. Don Nickles (R) of Oklahoma, Frank Murkowski (R) of Alaska, and Dale Bumpers (D) of Arkansas.

"Electric deregulation is going to be one of the biggest issues of the 105th Congress," says Dana Perino, a spokeswoman for Schaefer.

Among the provisions of the Schaefer bill:

*States would have to deregulate by Dec. 15, 2000 or the Federal Energy Regulatory Commission (FERC) would do it for them.

*States would have the authority to set the terms of electric service, to regulate the structure of companies providing electricity, and to deal with issues of reliability, stranded costs, and consumer protection.

*A renewable-energy credit rating system would be created to encourage electricity generation from renewable sources.

*As choice is implemented, two federal laws would be repealed on a company-by-company basis: a 1935 law banning the ownership of public utilities by holding companies, and a 1978 law requiring utilities to buy excess electricity from independent (unregulated) producers.

Not so fast, says the Edison Electric Institute. "We're not opposed to federal legislation. But we do believe there are a number of important experiences in the 47 different jurisdictions looking at restructuring," Owens says. He advocates waiting to see what the various states do and then using federal legislation to fill in the gaps. And he doesn't want a mandated deadline. "It's important to get the rules right so they apply equally to all companies in the marketplace," he says.

Ms. Perino criticizes that approach as foot-dragging by the major utilities. "A year ago, EEI was saying 'Just say no.' " Now, she says, they are saying, "Just go slow."

Moves toward deregulation have put utilities onto the fast track in one area: Mergers in the industry have been gathering steam. The FERC was expected to issue new rules yesterday streamlining regulatory approval of utility mergers.

The Schaefer proposal is mute on the issue of stranded costs, leaving it to the states to work out. In many cases, Perino charges, utilities are forcing customers to pay for the utilities' uneconomical decisions. EEI would rather see the issue resolved in any federal law. "Facilities and contracts should continue to be paid for [by the consumers]," EEI's Owens says. The independent producers argue that all contracts and commitments should be protected under deregulation.

Owens also wants the two regulatory laws - the 1935 Public Utility Holding Company Act and the 1978 Public Utility Regulatory Powers Act - repealed at the beginning of the process, not at the end, as Schaefer has proposed. "These are distortions in the marketplace today. We should deal with them today rather than wait for [deregulation] to happen and then deal with them."

Bliley says he's hopeful a bill will emerge from the 105th Congress. But he adds, "It won't be easy."

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