Indecision over electricity restructuring will continue

By Patricia Lloyd Williams

On the eve of the 2000 elections, the future of electric restructuring legislation in the 107th Congress, which will convene in 2001, probably depends less on the outcome of those elections than one might think. Barring totally unforeseen circumstances, the 106th Congress, now in session, will not pass restructuring legislation. The lack of consensus over key issues will continue into the next session, regardless of who wins the presidency and who controls the House and Senate in Congress.

There appears to be general agreement that states should not be absolutely forced to adopt competition in retail markets, that states which have already enacted legislation should not be required to change their programs, and that the Public Utility Holding Company Act (PUHCA) and the Public Utility Regulatory Policies Act (PURPA) should be repealed. Everyone supports reliability, energy efficiency and consumer protection in some manner.

It is going to be extremely difficult for parties to reach consensus on two other issues, however. The key sticking points are state-federal jurisdictional issues, particularly with regard to transmission, and the degree to which renewable energy sources and environmental issues should be addressed. The existing transmission grid was designed and built to allow utilities to support each other in case of emergencies and to facilitate economic exchanges of power among nearby utilities. Yet wholesale transactions increased from 20 000 in 1995 to two million in 1999. The grid is simply not designed to accommodate that level of traffic.

This raises the important question of whether the states should continue to play a large role in regulating the transmission system, or whether the Federal Energy Regulatory Commission (FERC) should be given additional authorities to order and regulate transmission, and whether participation in Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) should be voluntary or mandatory. Democratic restructuring proposals call for the FERC to have the authority to mandate the formation of ISOs and RTOs. Most Republicans, and some Democrats, oppose giving FERC major control of the transmission grid. The issue remains, however, that competition requires a regional approach to siting, building and investing in transmission.

Democrats generally support strong environmental provisions and back increased emphasis on renewable energy sources. They favour developing energy resources that will protect the environment by reducing reliance on coal and oil. Republicans generally oppose addressing environmental issues such as clean air standards in a restructuring bill. They favour developing resources such as the Arctic National Wildlife Reserve and other federal propertiesà‚– a move strongly opposed by Democratsà‚– and protecting the environment through new technologies to make coal and oil cleaner fuels. The Republicans emphasize energy security and the need to reduce dependence on foreign sources.

Market power could become a major issue if single suppliers emerge to dominate regional markets. Some side issues, such as the proposed sale of federal hydroelectric facilities, supported by some Republicans but opposed by the politically powerful public power lobby, could also derail restructuring attempts.

Conventional wisdom says that whatever happens in the election, the new Congress is unlikely to pass a comprehensive energy bill in its first session. It will likely be a time for new bills, hearings, study and negotiation. A major energy catastrophe could change that, and there are at least two potential crises on the horizon.

Number one, California was the first state to embrace competition at the retail level, and at this point, the situation can only be described as disastrous. San Diego Gas and Electric customers saw bills increase almost 200 per cent in three months. Other California utilities, banned from passing increased wholesale power costs on to consumers, have been unable to collect billions of dollars in costs. Capacity shortages, increases in the cost of natural gas, hot weather that translated into increased demand, and low availability of hydroelectric resources have all contributed to the problem, but in many sectors, competition is taking the blame for market volatility and price spikes. Circumstances are not likely to improve before the 2001 summer. People who are hesitant about competition are pointing to California as a reason to go even slower and do more study.

On the other hand, there have been some complaintsà‚– probably unwarrantedà‚– that if Congress had enacted retail restructuring legislation, the California situation would not have occurred. If the California experience spreads into other states or regions, there will be renewed pressure on Congress to take early action.

Second, an actual or perceived energy crisis, such as an oil shortage or continued price increases, could precipitate additional legislative activity. As one observer said, that is the type of issue politicians really like to use as a way of being visible.

The bottom line is, the 107th Congress will continue to struggle with the state-federal jurisdiction and environmental issues. It is not likely to act on restructuring legislation in its first session unless a national crisis mobilizes public opinion and concern.

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