An Invitation From Ken Lay
Enron holds court on electric restructuring, exposing deep industry divisions and the polarization of views.
It was held in early October, an unusual, invitation-only, private meeting dubbed , which brought together some of the most notable minds in the energy industry. The idea was to invite some of the top industry thinkers to the same table to sort out electric competition's troubles. The result was to expose the deep, persistent divisions and disillusion with electric competition's progress.
Even with academics from Harvard's Electricity Group, all four FERC commissioners, representatives from state legislatures and PUCs, former DOE officials, congressmen, top executives representing utilities and associations, and, of course, yours truly, no clear consensus could be reached when discussing details. Of course, many of the disagreements, or agreements, could be understood in terms of the long held political and business agendas that were represented by the people attending.
For instance, why was Enron intent on quizzing us on what sort of policy initiatives could be accomplished in 12 to 16 months under certain energy pricing and political scenarios? Enron's agenda seemed clear. Enron's CEO, Ken Lay, since reassuming the helm of the company, has just recently redirected the company's focus back to energy trading. Lay, like many of his energy-marketing peers, wants to be able justify to shareholders that he is embarking his company on a strategy that will continue to be profitable-pretty much a standard corporate concern.
Enron CEO vs. Washington PUC Chairwoman: The Gloves Come Off
Not surprisingly, Lay's view on the benefits of retail competition clashed with agendas held by representatives from PUCs and state legislatures from California and the Northwest. The Harvard educated chairwoman of the Washington Utilities and Transportation Commission, Marilyn Showalter, expressed deep reservations about the promise of retail competition bringing lower prices to her already low-priced state. Lay and Showalter had several verbal skirmishes throughout the day on the issue. Of course, at the end of the meeting, during evening cocktails, both Lay and Showalter continued their debate, oblivious to everyone around them. I got the sense that they could discuss the issue for days, and neither of them would ever give in to the other's position. I also got the sense that they each enjoyed the debate-the thrill of battle-as it were.
That was the strength of Enron's meeting, the fact that they invited people with opposing views on electric competition, in a forum where debate was encouraged. Of course, as a result, this meeting exposed how polarized the industry continues to be on many issues.
In fact, so intrigued was the to hear sometimes extreme and very much opposite views on electric competition between policy makers such as FERC Chairman Pat Wood III and Washington PUC Chairwoman Showalter, that we asked them both to detail their views in the upcoming Nov. 15 issue, known as .
The magazine recognizes, as many have, that the federal vs. state debate will continue to be at the center of any discussion on realizing electric competition, and tensions have heated up between the two in the wake of the California crisis.
For example, these federal vs. state tensions could be heard in reactions to the FERC chairman's remarks: "I don't want to federalize. I don't want state-by-state. I want a regional approach."
This prompted one PUC commissioner to respond, "I think state commissions are on the front lines. There is no such thing as regional PUCs. I see regional RTOs as economically dangerous."
Notwithstanding, some attendees, such as a Delaware PUC representative, voiced his favor of regionalization. "Many states are not opposed to regionalization, but they want to be at the table. There would be less doubt if there were a rational discussion."
Building Competitive Power Markets: Wasted Years?
The polarization of industry opinion, which some blame as delaying progress on energy restructuring, led some Enron participants to openly voice their disillusionment, and to even question whether they have been wasting their time.
Dr. Larry Ruff, an independent energy consultant who has designed several electric markets inside and outside the United States, wondered out loud whether his youth had been wasted on designing competitive markets for power. Surely, many executives in the audience felt as Ruff did: so many years of hearing promises of comprehensive energy legislation, competitive markets, and lower prices, followed by only partial regulatory and legislative action, in many respects-and partial successes.
Maybe, due to this general feeling of malaise, participants predicted that US electric retail competition would continue at a snail's pace, and that places like California would be more heavily regulated and less market orientated than other states in the future.
But not all was dissension in the court of Enron. Lay's view on the need to continue to improve wholesale markets was met with considerable support from FERC commissioners, congressional policy makers and business people, who generally supported the RTO concept as a catalyst to achieving true electric competition.
Yet, while many in Congress support greater powers for FERC in meeting this objective, the RTO process and national energy legislation still face many hurdles.
At press time, passage of comprehensive energy legislation seemed to be stalling for yet another year. Congressmen attending the conference were not optimistic that passage would occur.
Also, FERC Chairman Wood and the commission itself face the challenge of coordinating with the industry on its RTO vision. At the meeting, Chairman Wood hoped RTO development would be free of legal arguments, challenges or infighting. In fact, he said he wants energy executives at the table, not their lawyers, so as to speed the process of RTO development.
But as an attorney himself, the FERC Chairman must be painfully aware that FERC will only be as successful as its policies and its grounding in law. Otherwise, the industry's legal establishment will have full right in challenging him.
In addition, as fixing wholesale markets continues to be one of the industry's top concerns, as voiced at the meeting, FERC is once again being asked to move the industry further along the competition paradigm, placing the institution and the industry, in effect, at the crossroads of US energy policy. As a result, whichever path FERC decides to take just may determine the success or failure of electric restructuring.
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