Congressmen to propose further electric deregulation

WASHINGTON -- A key chairman in the U.S. House of Representatives will introduce federal legislation today to deregulate the sale of electricity, effectively dismantling the last of the regulated U.S. monopolies.

The bill by Rep. Dan Schaefer of Colorado would create a competitive market for the sale of electricity to individuals and companies by the year 2000. It would set rules allowing open and competitive access to use the nation's power lines, and allow states to determine the costs utilities can recover for past investments. It would repeal a host of anti-competitive laws currently on the books.

Schaefer, as chairman of the Commerce Subcommittee on Energy and Power, will be instrumental in setting the terms of the deregulatory debate, and his bill will be examined closely for its effect on individual utilities. Congressional action to deregulate the $200 billion a year electric utility industry will increase mergers, diversification, and cost controls -- and spur a flood of lobbying to recover costs incurred earlier -- as companies seek competitive advantages in a deregulated world. "As an investor, you have to ask two questions when you look at deregulation," said Daniel Ford, a utilities analyst at Dean Witter Reynolds Inc. in New York. "Will these companies be able to recover their investments, and can they then compete in a deregulated world?" The transmission and distribution lines that carry electricity will remain regulated under Schaefer's bill, but must be open at competitive prices to all generators, according to Schaefer's chief of staff, Holly Propst. Transmission lines carry high voltage power from generators to substations, where the power is diffused and sent along distribution lines to its final destination in homes and businesses. Schaefer's bill includes a provision to ensure states have the ability to assess charges on every electricity transaction, Propst said. That keeps companies from establishing private contracts with generators, and ensures that costs of deregulation are shared by all users. Wall Street analysts say companies that own the lines will have an early competitive edge. That will be an advantage for American Electric Power Co., Southern Co., and PacifiCorp., which own some of the largest regional transmission systems, Dean Witter's Ford said. "It provides them with a guaranteed income, and it also gives them intelligence about how power is flowing across the system," he said. "In a competitive environment, that gives them an edge." Among all of the questions federal lawmakers will debate, the one most likely to have the largest impact on the industry will be the question over stranded costs recovery. Schaefer's bill says that state regulatory bodies can allow utilities to charge all customers -- including their competitors' customers -- a fee to help them recover costs they incurred as a monopoly, including the costs of nuclear power plants many utilities built in the 1970s and 1980s. "These were costs that were incurred by utilities to meet legal obligations to consumers, some of which aren't recoverable in a competitive market," said William Steinmeier, head of Electric USA, which represents utility unions and stockholders. Other lawmakers, including Republican Tom DeLay of Texas, the powerful House Whip, favor federal legislation that would prevent states from allowing companies to recover stranded costs. That strategy, analysts say, would benefit newcomers into the industry, including Houston-based Enron Corp. The natural gas conglomerate recently began building and operating electric generators in an early effort to prepare for competition. The second issue with the potentially largest impact on the industry will be whether federal legislation includes rules that increase pollution emission standards -- rules that would add costly compliance requirements on coal burning utilities that currently produce, on average, the cheapest power. Currently, some coal burning utilities such as AEP, UtiliCorp United Inc., Cinergy Corp. and Wisconsin Energy Corp. are exempt from some emission standards set out in the Clean Air Act, allowing them to operate some coal plants without expensive upgrades that would lower their profitability. "These environmental concerns seem to benefit one region, and one type of utility, over another," said Bernie Schroder, coordinator for the Partnership for Customer Choice, a coalition of eight coal- burning utilities that supports deregulation without strengthened pollution standards. Changing the rules would benefit coal's competitors, mainly natural gas and nuclear power producers such as Enron Corp. and Public Service Electric and Gas of New Jersey. "In a deregulated market where new plants have to comply with the air standards, you're giving a huge government subsidy to these old plants," said Terence Horn, director of government affairs at Enron. Most political analysts say federal deregulation will take at least two years, and potentially longer. And there's no guarantee legislation will pass Congress at all. Senator Frank Murkowski, head of the Senate Energy and Natural Resources Committee, opposes speedy deregulation and any sort of set date for nationwide competition. Any deregulation bill must pass through his committee. That doesn't mean the industry will not continue its fundamental restructuring, however. Wholesale deregulation over the sale of electricity from generators to utilities is already the law. And four states -- New Hampshire, California, Pennsylvania, Rhode Island -- already have state laws allowing retail competition. Others are expected to follow. "Competition isn't the question any longer," Dean Witter's Ford said. "The question now is, who benefits?"

Copyright 1997
Provided by ProQuest Information and Learning Company. All rights Reserved.