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Cheaper Power to the People

A joke circulating Washington these days: How many Republicans does it take to change a light bulb? None. If the bulb needs changing, the free market will do it.

The joke's popularity stems from a nationwide trend likely to touch Americans at work, at play, and at home.

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The nation's electric power industry is going the way of airlines and telephones - out of the safe harbor of monopoly protection and into the uncertain waters of the free market.

Deregulation means that, just as you now choose where you buy long distance service, you can pick your power provider.

The switch won't happen to everyone at once, but when it happens to you, it promises to be at least as confusing as AT&T-vs.-MCI-vs.-Sprint, and possibly less rewarding.

Proponents of deregulation, led by political conservatives, say electricity bills will be trimmed by competition. And many state lawmakers require lower residential rates by 10 to 15 percent, but only at first.

Whether those savings persist and whether household customers will reap as big a share as businesses is far from certain.

At the least, the future will bring significant change for one of American's most vital services (just ask people in the Northeast without power this week after an ice storm).

And electricity's role is growing. The $200 billion-a-year industry is powering a larger proportion of America's productive machines and heating and cooling more of its homes.

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Until now, most electric utilities have produced the bulk of the power they need and delivered it to each home and business.

In return for their monopoly status, utilities were obligated to provide sufficient power for peak and emergency needs. And the rates charged customers were controlled by state commissions. This century-old system provided that the companies should get a fair rate of return on "prudently incurred" costs. Regulators frequently refused cost recovery if they considered the costs imprudent.

Future starts in March

In a deregulated future - one starting this year in California and Massachusetts - only the transmission and distribution of power will remain a monopoly. Regulators will continue to set prices for these delivery services.

But generators of electricity will be free to compete for customers.

Prices will be set, to a degree, by the free market. And the free market will be largely relied on to provide adequate power supply.

Some suspect power reliability will suffer.

"It is almost certainly going to screw things up," says Thomas Stauffer, a Washington, D.C., energy consultant.

Demand for power increases about 2 percent a year. Will power suppliers risk billions by investing in new plants?

A large, efficient power plant can take years to build. "Profits can be made in the short run," says Mr. Stauffer. "But no one is worrying about the medium- or long-run need. That mandate will be taken away from the utilities."

Planned changes could "sacrifice system reliability for lower costs," writes Dan Rudakas, an analyst at Everen Securities in Chicago.

Others see new technology coming to the rescue. Large and micro natural-gas turbines can be put into operation quickly.

Remaining issues

1. The federal government's role.

"The states are reluctant to give up control of something they have regulated for decades," notes John McCaughey, editor of a Washington newsletter, Energy Perspective. "But common prudence would indicate you should have some overarching federal rules."

Deregulation measures were considered last year. But no legislation passed. Congress is expected to take up the issue again this year.

2. Who benefits.

A free market would give large industrial and commercial users the bargaining power to get inexpensive electricity. And, in fact, these big power consumers are pushing the move into deregulation. They will almost certainly benefit from lower rates. Whether that benefit, or just added confusion, filters down to residential customers is a big question mark.

Some analysts suspect that cheap power, for example, from the Northwest will flow to higher-priced markets in California, making new power for the Northwest more expensive.

3. Will existing utilities be handicapped to promote competition, as were the Baby Bells and AT&T in the telephone business?

One thing is for sure, says Caswell Hobbs III, a utility industry lawyer: "People are going to have to learn to become smarter consumers of electricity."

Marching Toward Competition

The following states are moving toward electric-utility deregulation with varying speeds. States not listed have made no definitive moves.

Full-speed ahead

California - Began full competition for retail (non-industrial) customers Jan. 1

Massachusetts - Has two pilot programs, one for industrial customers, and one for retail customers in four cities. Full competition to begin March 1.

Rhode Island - Has competition for large industrial and government users.

Michigan, Montana - Phasing in competition next year. All customers to have choice by 2002.

Pennsylvania - Phasing in competition for one-third of customers Jan. 1, 1999. Completion by Jan. 1, 2001.

Oklahoma - Passed law requiring full competition in July 2002.


Washington - Pilot programs cover more than 10 percent of consumers, but there's no mandate to include others.

New York - Several pilot programs under way.

Idaho - Has had a pilot program for a year.

Illinois - Two pilot programs. Legislation sent back for rewriting.

Iowa - Planning a pilot program for early 1998.

New Jersey - Recommendations to phase in competition starting in October are now before the legislature.

Maine - Plans to begin supplier competition March 1, 2000.

Thinking about it

New Hampshire - Decision on full competition tied up in court by power companies after regulators refused to reimburse "stranded costs."

Nevada - Plans to begin competition on Jan. 1, 2000, pending approval by the state utility commission.

Maryland - Recommendation for competition to be phased in in April 1999. Legislature is studying the issue separately.

Wisconsin - Studying how to implement a 32-step plan for restructuring. Puts electric reliability above price competition.

Arizona - Considering phased-in competition starting in 1999.

Vermont - Plan for full competition by 1998 died in legislature.

Wyoming - Study just completed, recommends phasing in competition, but no specific time frame.

Missouri, Oregon - Applications for pilot programs on file.

Texas - Legislation for full competition defeated.

Connecticut - Legislation withdrawn. Regulators must wait for a new statute.

New Mexico - Hopes for competition in 2000, but legislature postponed vote.

Delaware - Drafting legislation following utility agency report.

Indiana, Kansas, Utah - Studies under way.

Georgia - Study has been proposed.

Hawaii - Report expected early next year, but geographic constraints present a tough barrier.

Virginia - State utility commission recommended deregulation to the state legislature.

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