[BETA] Fortnightly

WHETHER YOU CALL IT "DEREGULATION" OR "re-regulation," the promised move to competition does not mean less regulation - at least not any time soon. State public utility commissions appear willing to experiment with market pricing and customer choice, but only under controlled conditions where they can protect certain presumed "public benefits."

Federal Energy Regulatory Commission Chairman James Hoecker, for one, sees the energy sector entering an "era of supervised competition." Speaking last summer in San Francisco before the National Association of Regulatory Utility Commissioners, he offered both carrot and stick in describing what PUCs and utilities could expect during his term. He promised a relaxation - through competitive initiatives, regulatory reform and efforts to "de-monopolize" energy markets - but warned of refining methods used to measure market power.

Hoecker's concern about market power underlies the basic problem: PUCs favor deregulation for industry segments where workable competition seems feasible, but workable competition is not yet evident in most traditionally regulated markets.

A review of leading state PUC decisions from 1997 does not offer any final answers. It is not yet clear how regulators will defer to market forces, avoiding the urge to pick winners and losers, and yet preserve public welfare benefits. For now a new triad of interests has emerged with each group seeking protection: (1) customers, (2) utility shareholders and (3) new market competitors.

Electric Choice: Still an Experiment

In 1997 several states concluded long, arduous investigations and began to set up electric restructuring plans. Some states drew authority from new legislation, while other received support from the courts. In New York for example, a state court turned back challenges to restructuring plans initiated by the commission. %n1%n

Perhaps best known is the California plan, %n2%n which imposed a date certain for the start of retail electric competition. The basic elements of the California plan have been mirrored elsewhere, %n3%n such as in Michigan, New Hampshire, Pennsylvania, Rhode Island and Vermont. Rhode Island, %n4%n for example, has required that the state's utilities divest themselves of generating assets, while Pennsylvania, %n5%n Michigan %n6%n and Nevada %n7%n have considered allowing utilities to recover stranded costs - two conditions present in the California plan. %n8%n Unlike California, however, regulators in these other states have not yet required the formation of a power exchange as a spot market or an independent system operator to referee the transmission system. In some areas (most notably in the northeast states) regional power pools have taken steps toward the formation of an ISO.

But not every state has chosen to follow California's lead to move the entire market to retail choice at one time. Other states such as Idaho, Washington and New York are moving more gingerly, choosing to test the waters first with experimental pilot programs. %n9%n In the typical case, the largest utilities have developed the plans, which then go through a commission-led review and a modification process. Some of these states have already found their programs to need reworking as market conditions and customer preferences are revealed.

GPU Energy, for example, introduced an energy-only pilot program