UTILITY RESTRUCTURING: AN UPDATE
Faltering momentum has stalled congressional action on a restructuring
bill until 1998 or beyond; in the meantime a number of issues must be
resolved at federal and state levels.
By Danialle Weaver
Large energy users hoping for swift congressional passage of a
comprehensive bill to restructure the nation's electricity markets will
probably have to wait until 1998 - or even later - for the action to
heat up in earnest, industry experts now say.
Meanwhile, the Clinton administration continues to refine its own
proposals. Key issues continue to mutate as state-level restructuring
efforts proceed. And interest groups continue staking out their
positions on do-or-die issues.
The momentum to finish the restructuring effort that began with the
Energy Policy Act of 1992 has faltered. On March 3, House Speaker Newt
Gingrich (R-GA) told reporters that the legislation was not high on his
list of priorities and that any bill "should be thought through"
carefully. "It shouldn't bankrupt anybody and it shouldn't be done in
such a way that a handful of large, industrial companies get a
wonderful rate and everyone else gets a lousy rate," he said.
The speaker's comments effectively killed prospects for the bill's
passage this year. Some longtime Congress watchers now believe the bill
is dead until 1999, when the next Congress convenes. Lawmakers are
still bloodied from the mercurial battle over telecommunications
reform, energy experts point out. They add that it typically takes at
least two years of concerted effort in both houses of Congress to pass
particularly contentious legislation. others contend Congress never
acts unless there is crisis or consensus on a given issue, and neither
is now present.
DIVERGENCE OF OPINIONS
Of course, predicting what Congress is likely to do is risky
business. However, Gingrich's comments do illustrate the wide
divergence of opinions involved in the ongoing electric restructuring
debate. Despite the speaker's reticence to enter the fray, key players,
including members of Congress with primary responsibility for
overseeing electricity-related issues, continue to lay the legislative
groundwork by introducing bills, holding fact-finding hearings and
workshops, and refining positions on the key issues. For instance, only
two restructuring bills had been introduced in either chamber by the
time Gingrich made his "go-slow" comments. Five more have been
introduced since then.
Impatient for lower rates, large energy users are aggressively
seeking out ways to cut costs - with or without the utilities'
acquiescence. Some utilities are dead set against allowing energy
consumers the freedom to choose their suppliers as they would their
long-distance providers. They argue it isn't their fault that rates are
high since state regulators compelled them to build white-elephant
nuclear plants. They add that regulators also required them to
over-build their generating or transmission capacity for reliability
reasons.
Other utilities and unregulated power producers generally favor
retail competition. They want the freedom to sell power in every market
- and they want it now.,, Consumer groups want protection for small
customers and seek to ensure that low-income programs and renewable
energy projects continue. Labor groups want transition policies that
are fair to workers. Environmentalists argue that competition will
favor the operation of the cheapest - and dirtiest - power plants and
that air quality will suffer as a result. Small business wants
protection against high rates and unreliable service.
Some factions favor active federal intervention to create a level
playing field for all players, while others say that it isn't the
federal government's business to regulate intrastate electricity sales.
They argue that the feds should only intervene when states don't see
eye to eye. Still others insist that restructuring legislation will be
meaningless unless other electricity-related laws are changed or
repealed.
The Clinton administration is still sorting out its options and
probably will not act until Elizabeth Moler, the current Federal Energy
Regulatory Commission (FERC) chair, takes her place as deputy energy
secretary. (It's widely believed she will then replace the current
energy secretary, Federico Pena, who will return to private life.)
However, a draft administration bill was circulating among various
federal agencies last December; it favored mandatory retail competition
by a date certain, Now the administration appears to be leaning toward
a minimalist approach: allowing the states to sort things out
themselves while perhaps clarifying the responsibilities of the various
state and federal agencies involved, energy experts say.
CHANGING ATTITUDES
Meanwhile, attitudes among utility executives have undergone a sea
change. In 1996, the Washington International Energy Group, a
D.C.-based energy consulting firm, surveyed utility CEOs on the
restructuring issue. Thirty percent said that retail competition was
inevitable. This year, 86 percent do. The group's survey also found the
executives' emphasis shifting away from the separation of generation,
transmission, and distribution functions (known as "functional
unbundling"). Now they are thinking about fuel-neutral megaplayers,
power makers, power marketers, independent transmission grid operators,
and niche players.
THE BIG ISSUES
Although the reform momentum has slowed, thinking on the issue
continues to evolve. In the meantime, lawmakers, lobbyists, and
interest groups have identified some key issues that must be resolved -
somehow. Here are the most important ones:
* Stranded investments: Will utilities be allowed to recover the costs
of investments made under monopoly conditions at the behest of state
regulators (i.e., the "regulatory compact")? If so, who pays - the
utility's shareholders, residential ratepayers, or industrial customers
who move their operations to areas with-cheaper electric rates?
* Retail competition: Will the states be allowed to decide for
themselves whether to allow ratepayers in all customer classes -
industrial, commercial, and residential - to shop around for cheaper
energy? Or will the federal government order the states to do so?
* Market power: In a less-regulated electricity market, how can states
promote and sustain a competitive marketplace? And how can they prevent
once vertically integrated utilities from cutting sweet deals with
their own affiliates and subsidiaries or hoarding critical
market-related information from competitors - and the public?
* Antitrust provisions: Should FERC be given antitrust authority -
similar to that of the Securities and Exchange Commission - to order
divestitures of certain assets as a precondition for utility mergers?
* PUHCA reform: Is it now time to repeal the Public Utility Holding
Company Act of 1935, enacted to limit abusive corporate structures in a
monopolistic industry?
* Repeal of PURPA: Should Congress modify the well-intentioned Public
Utilities Regulatory Policy Act of 1978, which required utilities to
purchase certain minimum amounts of power from independent
renewable-energy projects?
* System reliability: In a less regulated environment, who will be
responsible for maintaining the operation of the nation's high-voltage
transmission network? the myriad local distribution systems? Will the
blackouts that occurred in the American West last year recur throughout
the country?
* Grid operation: What entity will ensure that all comers get equal
access to a region's power grid? Should it be an independent system
operator devoid of generating or transmission assets? Or a voluntary
regional coalition of state regulators?
* Renewable portfolio standards: Should Congress require power
producers to have a certain percentage of their portfolios in renewable
energy projects? Should FERC be allowed to create a system of tradable
renewables "credits," similar to the scheme created under the Clean Air
Act Amendments? And does the definition of renewables include
hydroelectric power?
* Consumer protection: Should utilities be relieved of the burden to
provide universal access to energy services to poor residential
customers or those in remote rural areas? If so, who will look after
the interests of the "little guy?"
* Subsidies: Should the government phase out subsidies for federal
power-marketing agencies? Or take away the ability of rural co-ops to get
below-interest loans? Or eliminate tax-exempt financing for municipally
owned systems?
* Securitization: Should Congress allow utilities to buy out their
stranded assets by issuing tax-exempt "rate reduction" bonds, thus
effectively shifting the burden for recouping those investments from
shareholders to ratepayers and lowering the utility's borrowing costs?
UNABATED DEBATE
While it is unsure how these and other issues will be resolved, one
thing is abundantly clear: The electric restructuring debate will
continue unabated for the foreseeable future. The controversy
associated with the restructuring - the most gut-wrenching change to
occur in the utility market since passage of legislation in the Great
Depression - may be deadly dull to some, but the underlying issues are
undeniably important to energy consumers throughout the country.
The importance of utility restructuring is summed up in a recent
editorial by Robert Marritz, electricity lawyer and publisher of The
Electricity Journal, who recently devoted the March issue of his
well-respected scholarly publication to the debate:
"Utter such phrases as 'regulatory compact,' 'stranded costs,'
'market power,' [and] 'functional unbundling' in the presence of
legislators, and, like most Americans, their eyes glaze over. Yet we
face this paradox: Many states are now in a frenzy to embrace the
justice of the marketplace when there is scant evidence of a market
that will be truly competitive. Most often the details of how one
state's approach may mesh with another's, or with national policy,
are left to be worked out later, or even ignored...
"The complex problems of restructuring will induce many glassy
stares from legislators, but it can't be avoided. If the competitive
electricity industry intended for the United States is to make any
sense, there must be a consistent, rational set of rules for how the
game is played. The states, electricity companies, and ultimately,
electricity users must have a say about how these and other issues
should be resolved. And then Congress - glazed eyes or no - must do its
job.
"
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