Electric Power Deregulation Gains Steam
Despite problems stemming from utility deregulation in California, momentum is gathering in Congress to loosen some of the rules of competition in the electric power industry.
A plethora of electricity-related bills, some with bipartisan support, have been debated in the last year in the House and Senate, with active encouragement from the Clinton administration. These debates have set the stage for possible action in the next Congress.
One proposal that has gained steam would repeal a New Deal-era statute that aimed to limit the growth and business activities of large corporate utilities. Another would seek to create more wholesale competition by easing barriers to transmission on the nation’s interstate power grid.
Some of the key players in the federal debate will appear in San Diego today as the energy and power subcommittee of the House Commerce Committee conducts a fact-finding hearing on the electric rate crisis that struck there in the wake of California’s deregulation of electricity markets.
The state’s experience, in fact, has led some to caution against the push for national deregulation. Rep. Bob Filner (D-San Diego) warned the House last week that it should look closely at what has happened in the area he represents, where electric bills doubled or tripled almost overnight.
“We are the poster children for the nation,” Filner said. “Deregulation cannot work when the basic commodity is controlled by monopolies. Take heed, Congress.”
Until now, congressional committees have trudged through the arcana of electric power regulations with little public notice. But lawmakers influential on energy policy acknowledge that California’s rush to restore order to wildly gyrating electricity markets, including a state-approved emergency rate rollback for San Diego Gas & Electric Co. customers, has cast a fresh spotlight on their work.
“Clearly, all of the problems that have arisen in California need to be better understood before we take real action here in Washington,” said Sen. Jeff Bingaman of New Mexico, the top Democrat on the Senate Energy and Natural Resources Committee.
But Bingaman said that deregulation on a national level could work as long as power producers have “free and fair” access to the nation’s transmission lines.
Even more bullish on the issue, Sen. Phil Gramm (R-Texas) said a consensus is growing that federal action is needed. “California has not proved that markets don’t work and you can’t have deregulation,” Gramm insisted. He said the state’s problems stem in part from a dearth of investment in electric power generation.
Gramm knows that it can take years to deregulate a major industry. He shepherded a major, multiyear effort that last year led to repeal of New Deal-era restrictions on the nation’s financial services firms.
Like that act and the 1996 telecommunications deregulation, any successful overhaul of the nation’s many-layered laws governing electric power would take painstaking work to resolve partisan and regional differences and, especially, the conflicting aims of special interests.
Judging from the lobbying activity of utilities and major electricity customers, the battle in Congress has stepped up considerably. Congressional Quarterly last month identified at least seven coalitions that are active on deregulation, including one representing investor-owned utilities--the Edison Electric Institute--which has spent more than $40 million in three years to lobby Congress.
Investor-owned utilities produce about three-fourths of the nation’s electric power, according to the institute, and have an enormous capital investment in generation and transmission facilities.
Others that have spent millions in lobbying include rural electric cooperatives and public power agencies.
Political donations connected to utility interests also have increased as the issue has advanced. Campaign contributions from electric utilities to national party organizations and federal candidates in this election period total more than $12 million to date, up from $5.4 million in 1993-94, according to the Center for Responsive Politics in Washington.
What do all these special interests want? Most players agree that a starting point is repeal of the 1935 Public Utility Holding Company Act. That law, meant to limit utility mergers, has restricted the growth of large utilities and now is widely seen as an impediment to competition. The administration--which prefers to call its effort “restructuring” rather than “deregulation”--has endorsed repeal as part of a larger package that would give federal regulators authority to review the company records of monopolies and curb abuses.
Beyond that, goals diverge. Many hurdles remain before legislation would be ready for passage, although administration officials and lawmakers say that significant progress has been made.
“We got a lot done this Congress,” said Rep. Joe Barton (R-Texas), chairman of the panel that will conduct today’s hearing. “We didn’t get a bill to the president’s desk, but we’ve built a real good base.”
The key to a final deal may be whether a compromise can be found on oversight of the interstate power grid--the highway that connects electric suppliers to customers.
Some lawmakers, like Rep. Thomas J. Bliley Jr. (R-Va.), retiring chairman of the Commerce Committee, favor a greater role for the Federal Energy Regulatory Commission. Some, like Barton, lean toward leaving the matter to states. And some investor-owned utilities that now have a dominant hand in the grid just want to be left alone.
“It’ll be a real battle next year and the following year on this issue--open access to the transmission system,” said Charlie Higley, who tracks energy issues for Public Citizen, a consumer advocacy group in Washington. “It’s been brewing for decades, but it’s coming to a head.”
The battle lines on the transmission issues are being drawn by the likes of the Edison Electric Institute and the Enron Corp., both well-known on Capitol Hill.
Jim Owen, an institute spokesman, said the group’s first priority is to expand transmission capacity because the number of wholesale electricity transactions nationwide has skyrocketed in recent years--from 20,000 in 1995 to 2 million in 1999. But Enron, a Houston-based firm that tries to find and deliver energy cheaply to clients, said its goal is to unclog utility-controlled choke points in the existing power grid.
“We better get reliable electricity in this country and do everything we can to make sure that electricity flows as freely as possible,” said Mark Palmer, vice president of corporate communications for Enron. “We cannot allow monopoly interests to game the system to their advantage.”
Monopoly abuses are what critics say have happened under the California deregulation. So far, about two dozen states and the District of Columbia have moved to open up retail electric markets. As Congress nears the final stages of its own debate, lawmakers will have to determine how federal reforms would fit with what states already have done.
In 1997, a year after California enacted its plan, the state’s 52-member House delegation sent Bliley a letter predicting that the move would “provide tremendous benefits to the citizens of our state as well as those who choose to do business in California. We are justifiably proud that California . . . is again in the vanguard of an unfolding issue.”
The Californians made clear in the letter that they believed any congressional legislation should not interfere with their state’s own plan. Now, many who signed that letter rue their initial enthusiasm.
Filner, for one, noted that his was the last signature on the letter. He said he had doubts at the time over whether to sign. “I should have gone with my instincts,” Filner said.
