Did you see Enron's new TV ad when it aired last month during the Super Bowl? What a dud. I had heard about Enron's big pitch (em in fact, I was watching carefully for the ad when, early during the first quarter, here comes this scene of an electric utility power plant control room with a hamster running in place on a wheel inside a cage, trying to reach a bottle of beer standing on a pedestal a few inches away.

Whoa now! Can this be true?

Then the grid goes down, and a utility crew (one lone worker) rushes in and saves the day with fresh bottle of Budweiser, and I realize that I've been spoofed. Unless I missed something, I didn't see Enron's ad run until the fourth quarter, just a few minutes before Desmond Howard told us he was going to Disney World. I guess that tells you what Madison Avenue sees as the relative importance of an iced long-neck versus electric utility restructuring.

But maybe that's a good thing. You'll recall that before AT&T could break up, we (baby boomers) laughed ourselves silly with Lily Tomlin and her "Ernestine" sketch on Saturday Night Live: "We don't have to. We're the phone company." Today, when Jay Leno starts telling utility jokes, you will know at last that America is ready for customer choice.

Which reminds me. Believe it or not, I hear that Viacom Consumer Products, the licensing division for Paramount Pictures, is making inquires quietly around the country to see if any electric utilities would be interested in buying the rights to use the Star Trek franchise in consumer branding campaigns for new energy services. You know the drill: "To go where no man has gone before." When I talked with an executive from Viacom, he told me he thought that utilities might make a good match with Captain Kirk, Spock, Scotty, et al.

"It's futuristic," he said. "It brings people together. The Star Trek brand is already familiar to 99 percent of the public."

"The FERC Doesn't Know"

No doubt by now you have seen one of those "leaked" copies of the latest draft of the Clinton Administration's bill on electric utility restructuring, now under development at the U.S. Department of Energy. Among other changes from current law, the bill would require prior approval by the Federal Energy Regulatory Commission of any merger between electric or gas utility holding companies. (For more on the DOE bill, turn to Inside Washington and Joe Schuler's latest report.)

This new rule on holding company mergers appears directed at mergers like the proposed deal between Enova and Pacific Enterprises, one of the many gas-electric combinations now pending. Others include TU + ENSERCH, Houston Industries + NorAm, Enron + Portland General, Duke Power + PanEnergy, and LILCO + Brooklyn Union.

When I read the DOE draft, I recalled a presentation by former FERC commissioner Mike Naeve given at last year's DOE-NARUC natural gas conference in St. Louis. In so many words (em and this was last spring, before many of the recent merger announcements (em Naeve suggested that we might end up seeing a rash of gas-electric mergers simply because they might have an easier time winning FERC approval than a strictly horizontal deal between vertically integrated, investor-owned electrics. With the Securities and Exchange Commission relaxing its strict interpretation of the Public Utility Holding Company Act, Naeve saw the gas-electric merger as a convenient method to leverage the "value of incumbency."

Naeve, now a partner at Skadden Arps in New York City, put it this way: "An electric company may acquire a gas company without getting FERC approval if the electric takes over the gas by issuing securities an if the electric is bigger than the gas company. Very few antitrust issues will arise when electric and gas companies merge with each other."

Now, of course, we have the FERC's new policy statement in Order 592, which injects an antitrust inquiry into virtually any merger between vertically integrated electrics. But does Order 592 suggest that the FERC will question market power in a gas-electric merger?

"That's something we're looking into very carefully," said an unnamed Washington lawyer and former FERC staffer, when we met for breakfast recently. Said another lawyer at the meeting: "The FERC doesn't know what to do with mergers. So for the electric-only deals it holds 'em up, and for the gas-electric mergers it let's em' go through."

Wholesale Is No Choice

The other big news in the draft DOE bill is how the administration has apparently caved to pressure from low-cost enclaves by adding an escape clause giving states an option on customer choice. If a state prefers not to adopt retail choice, it can settle on wholesale access. In other words, Congress will guarantee a free and open wholesale market (em removing all impediments that might block or inhibit an electric utility from obtaining bulk power from any available resource (em but will acquiesce in the preference of any state in denying its own consumers the right to shop around among utilities, marketers, or any number of new variants of energy service company.

This is choice? Excuse me, but I don't get it.

When a car buyer compares Honda's Accord with Ford's Taurus, can you hear the buyer saying, "I'll get buy the Taurus, since Ford gets its steel from low-cost mills, whereas Honda is stuck buying from high-priced mills under long-term contracts,"? Or better yet, can you imagine teenagers choosing between Nike or Reebok according to where each company buys its nylon?

When you or I go shopping and compare competing consumer products, we look at the retail price; we examine the small differences that distinguish each product in function and appearance. Cost inputs are irrelevant. We automatically assume that each manufacturer has minimized its wholesale costs as much as possible. That's square one. That's where competition begins. The first thing the market does is soak up all the opportunities for arbitrage; all those differences in wholesale costs.

The idea that wholesale access will somehow benefit consumers rests on the forlorn assumption that the arbitrage opportunities that now exist between high-cost power in the Northeast and low-cost power in the upper Midwest will always be there. I see that assumption as mistaken, despite the reality of transmission bottlenecks.

Ask this question: Can investors save money by flying to Seattle to buy Microsoft stock? Of course not. So why should electricity be any different?

Editor

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