Picking Your Power Company

Deregulating the $208 billion electric power industry will happen, but it could take some time

By Craig Staats/AllPolitics

WASHINGTON (Aug. 22) -- When Congress goes back to work next month, a Colorado congressman will once again push a pocketbook issue: cutting the price of electrical power.

GOP Rep. Dan Schaefer, who wants to give all consumers the right to choose their electricity provider by December 2000, plans another hearing the first week of September, and expects a markup session later in the month on his legislation (H.R. 655).

"If people think this is an issue that's not going to happen, they are badly mistaken," Schaefer told The Rocky Mountain News this week. "If a big state like California can restructure, why shouldn't every other state be able to?"

Schaefer, chairman of the Commerce Committee's energy and power subcommittee, has presided over 18 hearings so far, trying to educate his colleagues and the public on the intricacies of deregulating the electric power industry.

A 50-50 chance

Schaefer puts prospects for his bill at 50-50, although some analysts say electricity deregulation has slipped to Congress' back burner and it's unlikely anything will get out of Congress this year.

The problem is that deregulating the $208 billion electric power industry is a huge job. It's the nation's last regulated monopoly, and many consumers still are puzzled by the proposition they could pick a power company just like they choose a long-distance telephone carrier today.

But it's happening, at least at the state level. Thirteen states have passed legislation, six more have rules in place moving toward ending utility monopolies and the rest are at least looking at deregulation.

Still, proponents want a federal bill to make sure there is a certain date when everyone who buys power will have a choice. States that move ahead on their own will have a free hand under Schaefer's proposal.

"I'm very optimistic that something will get through the Commerce Committee this Congress," said Katherine Horne, executive director of Americans for Affordable Electricity, a coalition of businesses, residential consumers and large industrial users that favor deregulation.

On the other side, though, is the Edison Electric Institute (EEI), a trade association of investor-owned utilities. The association opposes a federally mandated timetable, in favor of letting states decide how or whether to proceed.

"We believe that is the most logical venue," said the trade association's spokesman, Jim Owen. EEI opponents say that's only because utilities historically have enjoyed great lobbying success in the state capitals, but Owen says it's not a matter of picking where to wage a fight against deregulation.

"We are not venue shopping," he said. "Mr. Schaefer attributes far too much power and clout to our efforts."

Make mine solar, please

The key to creating a competitive market for electricity is to separate power companies' three traditional functions: generating power, moving power to substations over high-capacity lines, and finally distributing it to individual business and residential customers.

In a competitive market, you would still get your power via your local company's distribution wires, but you could shop around and buy power from any company in the marketplace, based on price, special services or other factors. An environmentalist might opt, for instance, to buy power produced by wind turbines or solar cells.

Horne concedes it's a strange concept the first time you hear it. "You want to be able to turn on the switch and you don't think about much else," she said. "While it's [consumer choice] a strange concept, people want to see savings."

There are dueling studies about the impact of deregulation on monthly electric bills. But one study by the Citizens for a Sound Economy, a free-market advocacy group, said the price of power could drop by from 18 to 26 percent in the short run, and even further over time.

Enron Corp., a Houston-based natural gas and electricity wholesale marketer that favors deregulation, has estimated that competition will reduce consumer electricity bills by 30 to 40 percent. That's comparable to a national tax cut of $70 billion to $80 billion a year.

The 'stranded costs' issue

The single most nettlesome issue in the transition to deregulation is how to deal with so-called "stranded costs." This is money that utility companies have tied up in unprofitable assets -- uneconomic nuclear power plants, for example.

Companies say they need relief for these debts, but opponents say it would be outrageous to force consumers to foot the bill for bad decisions by utility companies in the past. One measure before Congress by Rep. Tom DeLay (R-Texas) prohibits recovery of these stranded costs.

An unusual alliance of groups, including Friends of the Earth and the Heritage Foundation, have created a "Stop the Bailout Coalition" to lobby on that issue.

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Continued: A worry about unintended consequences