Consumer advocates, utility chiefs, regulators, and analysts offered conflicting visions of retail competition's future at NASUCA's 1996 Capitol Hill Conference.

The National Association of State Consumer Advocates ( NASUCA) conference, "Restructuring the Electric Industry: What Are the Costs and Benefits to Consumers?," was held on February 29 and March 1 in the Rayburn House Office Building. The event was co-sponsored by Rep. Dan Schaefer

(R-CO), chairman of the Energy & Power Subcommittee, but the congressman was conspicuously absent, apparently attending a committee hearing.

Conference speakers, however, spoke their minds and defended their positions on a topic now debated at public utility commissions (PUCs) in at least 37 states. William L. Massey of the Federal Energy Regulatory Commission (FERC), a keynote speaker, said the nation was undergoing a "celebration of competition" driven by customer choice.

"Why shouldn't customers get to choose their electric supply?" he said. Competition and choice could release innovation and entrepreneurial genius "in this somewhat stodgy and old-fashioned industry. How long would it have taken the U.S. Postal Service to create Express Mail without some competition from Federal Express?"

The economic stimulus from competition could be huge, Massey argued. Cash revenues from retail electric reach $260 billion a year in the United States (em more than the combined revenues of the natural gas, telecommunications, and airlines industries. Quoting Merrill Lynch, Massey noted that an aggressive national movement toward wholesale and retail competition could save consumers $31 billion annually.

That's an alluring prospect for policymakers and lawmakers.

Scott Hempling, a Silver Spring, MD, attorney and consumer advocate, spoke about generation, noting that while people say there will be competition in generation, not many suggest how it works. The first step, he said, is to remove entry barriers:

"I can't begin to tell you how many states have begun investigations by preparing models rather than analyzing entry barriers. How you take a model that you hope will be competitive and impose it on a market with a dozen entry barriers is beyond me."

Debate on electric restructuring has succeeded, Hempling said, in that "people are now allowed to challenge the system on intellectual grounds (em without being labeled unpatriotic. That's real progress."

He warned that the restructuring debate shouldn't take place isolated from the merger trend: "We're talking about changing the role of government or maintaining the role of government in this industry. Having discussions about restructuring while mergers are happening across the hall, and not linking the two, is an error."

Hempling also said that a phased-in approach for retail wheeling should favor residential, not industrial, users: "That's not a political move to get the votes, that's a move rooted in the reality.... We have the most to learn about treating residentials.... Maybe we better find out first whether we're going to do it for the most difficult people."

"The reality is we have a phase-in issue now where the big are going first," countered John Anderson, executive director of the Electricity Consumers Resource Council (ELCON). "If we can work together, maybe we can remedy these problems."

In response to Hempling's barbs about industrial users sticking residential users with stranded or uneconomic costs, Anderson said that once competition comes, the issues will vaporize: "We care whether it makes sense for customers.

"Customers are going to say 'we didn't ask for any of these uneconomic costs and we don't want to pay any of them.' Utilities will say 'I was forced to put in all of these uneconomic costs and I should get them all back.' And we've got to find a way of cutting the baby. And it's going to be tough.... I didn't say stick it to the stockholders 100 percent."

One conference attendee questioned whether stranded costs were part of the "social contract," especially in situations where plants planned at $500 million cost $5 billion. "In those situations, ratepayers were asked to come in and sort of save the utility from going bankrupt," he said. "That doesn't seem to me that should have been part of our social contract with you."

Although stranded-cost payments will delay competition and reward monopolies, Massey said, there has to be cost-sharing, even if it slows the move from monopoly to competitive markets. Stranded costs must be legitimate, verifiable and prudent (em not offloaded from a gravy train.

"Certainly the nuclear experience as well as the QF experience both strain the social compact," said John Jurewitz, regulatory policy manager, Southern California Edison. "I think that's exactly what's causing us to go towards retail access, frankly." Then again, he said, he wouldn't want to see restructuring reopen issues that were litigated long ago.

In the move to retail access, suggested William F. Hecht, chairman of Pennsylvania Power & Light, it might be appropriate for PUCs to license power suppliers to ensure that they can indeed supply customers and be reliable.

Hecht also suggested that customers be free to buy directly from a pool or from load aggregators at market-based rates: "All customers would have the benefits of the marketplace setting the price for energy at the bulk-power level." t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY. Email: schuler@pur.com.

Top 10 Industry Cliches

When They Say... It Really Means...

1 Let the market work. It's my turn to control the market.

2 Restructuring will lower your rates. Restructuring will lower my rates.

3 We need to get government off our bakcs. Thanks for the franchise Mr. Mayor: Now let me raise my

prices in peace.

4 Let's not have one size fits all. I'm taking the size 7's; you can have what's left.

5 We should do this by consensus. If you think I'm giving up 100-percent market share,

you're out of your mind.

6 We should have a phased approach. Me first.

7 We need an independent system operator. Why should I give up the one secure monopoly I still have?

8 Look how well it's working the Forget everything you know about electricity.

telecommunications and gas industries.

9 Unbundling is inconsistent with our Sixty years ago, I came up with a financial gimmick designed

indenture provisions. to lock out all competitors and it has worked real well.

10Deregulate Re-regulate

Source: Scott Hempling, attorney/consumer advocate

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