July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Who Shapes Markets? Regulators or Litigants?
NO ONE LIKES TO BE TOLD THAT HE OR SHE ISN'T CEN-
tral to the job at hand. But that was part of the message that Vinod Dar, managing director of Hagler Bailly's restructuring group, told a gathering of state public utility commissioners.
Take electric utility industry restructuring, for example. At the beginning of the game, Dar said, regulators are important because they create the intellectual structure. They are also important at the end game, to codify rules. In mid-game, however, "the courts control the process by which the market emerges." The new market structure will consist, therefore, of three main players, incumbents, attackers and the court system, he says.
As for market barriers, Dar said he believes that "freedom and markets find a way, despite barriers. Attackers will file and create legal changes¼ Most successful attackers change the rules of engagement, rather than go head on."
These and other topics, including consumer savings and emissions reductions, dominated the recent Department of Energy and National Association of Regulatory Utility Commissioners National Electricity Forum in Washington, D.C.
Dar's aggressive future isn't necessarily what Rick Green, CEO of UtiliCorp, pictures. Green said he sees "'lite' competition" now, and doubts whether the industry will see robust retail competition (em as it has on the wholesale side (em without "a lot of transition and work to move to fill in the gaps from tight regulation to full competition." He admits there have been some price reductions, in part because of a good economy, customer negotiations and pilots offering savings, but he questions whether that will continue.
The patchwork of rules that states are beginning to put together, Green said, impedes the market, which will be further complicated by the congressional trend to grandfather those attempts once they get legislation written. Enlarging retail experiments to make them more regional in nature, Green added, pushing for better stranded cost answers, and "uniformity in the future" among states' initiatives will be the keys to closing the gap.
The topic of emission controls and the role competition might play on reductions was also on the minds of forum participants, as the first round of international negotiations at the U.N. conference on global climate change was concluding in Kyoto, Japan.
"Economists and environmentalists both hate waste," said Lawrence Summers, deputy secretary, U.S. Dept. of Treasury to the 500-plus attendees. "While the ultimate ability of electric restructuring to reduce [U.S.] emissions remains open to debate, by some accounts, competition could cut emissions by as much as 10 to 20 percent."
Electric Power Research Institute President Kurt Yeager presented a more ambitious challenge: "[The issue] should not be whether we reduce carbon emissions in 2010 to 1990 levels. The much more relevant and feasible goal is that we reduce carbon emissions by 2100 to 1900 levels.
"If we can incent robust technology development and investment by and through the restructured industry¼ it is possible that in the next 20 years a net $1 trillion can be added to the U.S. GDP each year and that national energy efficiency can be improved by 20