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ELECTRIC POWER DEREGULATION Uncertainty over effects on rates and the environment adds to thorny problem of how to achieve this fairly straightforward concept Bette Hileman C&EN Washington
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eregulation of electric utilities is one of the hot topics in Washington, D.C., these days. Although the details are somewhat esoteric, it will profoundly change the way electricity is bought and sold in this country. Everyone who has examined the issue closely says that bringing competition to the electric power industry offers a great opportunity to lower costs for consumers and improve the environment. But if it is not done right, it could favor large customers at the expense of small ones, worsen air pollution, and accelerate growth in carbon dioxide emissions. Four states have already passed legislation that will allow customers to choose which company supplies their electricity. And two bills have been introduced in Congress that would make retail competition in electric power a national policy. This year or next, Congress will likely decide what form deregulation should take. In late March, Sen. Frank H. Murkowski (R-Alaska), chairman of the Committee on Energy & Natural Resources, completed a series of workshops to aid in crafting a bill. All consumers—from individuals to large chemical companies—have a stake in the legislation that is finally passed. The Chemical Manufacturers Association (CMA) estimates that deregulation will save the chemical and allied products industry $700 million to $955 million a year. And Citizens for a Sound Economy, a Washington, D.C.-based advocacy group, predicts that universal customer choice will lower residential electric bills 30 to 40%. "Deregulation of the electricity market is the largest pending issue of competitiveness in the U.S. today," says Jeffrey K. Skilling, president and chief operating officer of Enron Corp., a Houston-based company that is a large marketer of natural gas and electricity. According to Environmental Protec-
tion Agency figures, electric utilities—a $207 billion-per-year business—are now the largest single source of pollution in the U.S. They currently account for 35% of carbon dioxide, 66% of sulfur dioxide, and 30% of nitrogen oxides emissions. Until now, electric utilities have been monopolies serving captive customers. Under regulation of state and federal governments, they have provided universal electric service in return for predictable profits. States have controlled the intrastate markets, and the Federal Electric Regulatory Commission has controlled the wholesale interstate market—the sale of electricity from utilities in one state to utilities or marketers in another. In a totally deregulated system, utilities would be free to sell to any customer in any state at any price the market would bear. Currently, power companies control and maintain transmission lines in their service area. But under deregulation, the power generation function would be separated from the transmission function.
What are called independent system operators would control the transmission lines. Because a total of 43 states have already deregulated their electricity markets or are considering it, observers consider open competition inevitable across most of the U.S. But various interest groups have vastly different ideas about how it should be done. The issue has created unusual alliances between groups that are not normally allies and rifts within the utility industry itself. One big question: Is federal legislation necessary? Or should states simply be allowed to deregulate on their own, as they see fit, without federal interference? Kentucky and Idaho and other northwestern states, which already have very low electric rates, have strong opposition or misgivings about open competition. They fear that as rates even out across the country, their rates will rise, and they will be losers in the deregulation game. In contrast, CMA claims that a federal law is needed to ensure that all states deregulate by a specific deadline. "Since electricity flows in interstate commerce, federal legislation is necessary to facilitate a smooth transition to customer choice and to provide a consistent national framework," says Katherine M. Home, CMA manager for tax and energy policy. This will guarantee that "all classes of consumers—residential, commercial, [and] industrial—will have a right to choose their electricity supplies," she says. The National Association of Regulatory Utility Commissioners (NARUC) also wants federal legislation. The association
Electric utility rates vary widely across the U.S.
Note: The average U.S. electric rate is 6.9 cents per kWh. Includes residential, commercial, and industrial rates. Source: Energy Information Administration
Highest rates (>8.0 cents per kWh) * Above-average rates (7.0-7.9 cents per kWh) Below-average rates (5.4-6.8 cents per kWh) Lowest rates (
