Talk runs gamut from "rocket docket" to "Just go slow." A merger announcement kickstarted NARUC's annual conference last year. This year, in San Francisco, there was little difference in conference chatter. Only this time, MCI Communications Corp. and British Telecommunications Plc were the suitors, in a $20 billion corporate marriage.

Regulators had better get used to the "M" word, noted speaker John E. Hayes, Jr., chairman of Western Resources Corp.

In utilities alone, he said, there were 69 gas and electric business combinations worth $23 billion through August of 1996, compared to $17 billion in 1995. The 1996 figure exceeds the value of all mergers and acquisitions spanning 1988 to 1994.

But to characterize the National Association of Regulatory Utility Commissioners' November 18-21 conference as "merger-prone" would be inaccurate.

U.S. Rep. Dan Schaefer (R-CO) portrayed Capital Hill's electric restructuring debate as shifting from "just say no" to "just go slow." Edward Tirello, senior vice president of NatWest Securities, predicted that mortgage, cable, alarm and long-distance telephone services will be sold packaged (em with the main consumer bennie being frequent flier miles. And William Massey of the Federal Energy Regulatory Commission (FERC) called for a "rocket docket," a fast-track merger approval if a case tripped no competitive buzzers.

Rep. Schaefer, for his part, said the restructuring debate had become one of the most closely watched in Washington, DC. Even the Clinton administration has switched gears, he said. A year ago the White House said there's no reason to consider retail choice legislation. "Today, the administration is actually drafting retail choice legislation and holding field hearings throughout the country." At least 47 states, the congressman added, were studying retail choice. Some are working to implement their plans.

"The simple suggestion that competitors would ignore residential market consumers representing a market of over $90 billion a year is ludicrous," he said of deregulating the retail market. "The only way small consumers will not see the benefits of competition is if they are not allowed by policy makers and regulators to have direct access to the free-market system."

Massey, meanwhile, described FERC's "near future" policy concerns:

• Implement and rehear Order 888, largely for technical corrections;

• Boost regional efficiency to eliminate "pancaked transmission rates" and to nourish fledgling independent system operators (ISOs);

• Deal with generation-based market power;

• Ensure that FERC policies protect grid

reliability; and

• Accommodate "pro-competitive state retail access and restructuring programs."

"How we should work with the states to facilitate these state restructuring programs will be a major area of policy development for FERC over the next couple of years," he said.

Massey was encouraged by growing interest in the ISO concept because properly structured it could eliminate undue discrimination better than functional unbundling.

"Look at what is happening coast-to-coast," he said. "Starting in New England, there will be a New England ISO proposal. Although we rejected the PJM ISO filing, PJM remains committed ... we have ISO fever, and I think it is a good thing, with a few caveats." He said the ISO must be structured for independence, must produce regional efficiencies, and play a role in grid reliability.

He cited the "Declaration of Independence" as evidence of state regulator support for ISOs, but the declaration's wider backing had earlier been shot down in NARUC committee meetings (see sidebar).

On mergers, he said FERC hoped to have a new policy soon: "FERC's merger policy ought to build from the fundamental principle that mergers should not significantly diminish wholesale competition. If not, we're really talking out of two sides of our mouth."

The commissioner said FERC also needs a timeline for processing mergers. "We ought to be able to say any merger application we will handle within a year, maximum, including the hearing process. And the second thing is we ought to adopt what I would call a 'rocket docket,' a fast-track approach for mergers that clearly raise no competitive alarms."

Edward Tirello, senior vice president-research, NatWest Securities, predicted the future of the electric utility industry. In 10 years, he says, there will be nine FERC-regulated grid companies; there will be 50 generating companies; within each region there will be up to eight major generating companies; on the distribution side, there will be 30 to 40 companies, considered to be holding companies, that may own shares in generating and transmission companies; they'll have from two to 10 million customers; basic electric and gas will be commodity services offered by these companies at slightly above break-even; all profits will come from ancillary services offered by unregulated subsidiaries in home security, telecommunications, cable TV, and other areas.

Tirello said companies will say to customers: "Here's the deal. We will service your mortgage ... for an extra $20 a month you can have our alarm service, for another $25 a month, you can have our basic cable business, for another $10 a month, take our special long-distance deal. And I think that the ultimate determinant in who you use will be which frequent flier mileage program you have.

"You might laugh, but this is the only thing left that they aren't giving miles on. Believe me, it's coming.

"Now, in the transition, it's going to be a little tough. We've got this little stranded asset problem."

Tirello also had a mouthful on mergers: "[Electric companies are] all involved with making strategic alliances, which are always win-win. There's no win-win in this world. Somebody wins and somebody thinks they win." t

Joseph F. Schuler, Jr. is an associate editor of PUBLIC UTILITIES FORTNIGHTLY.