Prometheus paid dearly when he stole fire from the gods and gave it to man, but his courage paid off. Fire now belongs to the people. So should electricity, says New York state Judge Joseph Harris, of Albany, who ruled last fall that state regulators could force open New York's electric industry, but warned against hidden favoritism:

"Prometheus," wrote Harris, "in breaking the monopoly of the gods and by giving electrical energy to mankind ... [should] not be demeaned by a mere transfer of that monopoly to the lords of industry. It was a gift to mankind, not a gift to a favored few." (See, Docket No. 5830-96, Nov. 25, 1996, Supreme Ct., Albany County, affirming N.Y. PSC Opinion No. 96-12.)

Turn now to Alabama, to a suit filed January 27 to challenge a state law enacted last spring. The plaintiffs say the law is unconstitutional (em that it will block meaningful electric competition.

Where is the metaphor, you ask? Alas, it is not Prometheus, but Vulcan, the Roman god of the forge, whose statue stands high above Birmingham on Red Mountain (em the second-tallest in the country and the tallest cast-iron statue in the world. Even so, this story claims enough characters to rival the classical myths.

The Story

"This is the worst, most anti-choice legislation that's out there."

That is William S. Armistead, v.p. for federal affairs at Citizens for a Sound Economy, one of the plaintiffs in the suit. He's describing Alabama Code sec. 37-4-30 (see sidebar), which requires customers wanting to sign private power supply contracts in Alabama to notify their utility beforehand. If the utility sees a problem with stranded costs, the law could require approval from the state public service commission, and perhaps even a bond to guarantee cost recovery for the bypassed utility (em meaning Alabama Power Co.

By all accounts, passage was virtually assured before the bill was even introduced (em though some unions opposed it (em due to behind-the-scenes lobbying. Nearly everybody I talked with remarked about that: "The most massive ever assembled in Alabama," said Tom Conway, counsel for MacMillan Bloedel, a paper manufacturing company. "On greased wheels," said Marty Ellis, communications coordinator for the Alabama Electric Consumers Coalition, of which Bloedel is a member. "It took everyone by surprise. Some of Alabama Power's largest customers had no idea it was in the works."

Those who oppose the law see it as a "catch-22." A customer seeking a private power supplier will want to know all his costs up front. However, before any deal is completed, the law would force a customer to notify the utility, which would then estimate its stranded costs and, if significant, send a bill back to the customer, which might then make the deal impractical.

One of those opponents, Greg Elam, is the power marketer who brought the suit. He knows the electric industry, having been hired in 1993 by Enron to help set up their trading operation in Houston, after 12 prior years with Cincinnati Gas & Electric Co. Today he works at American Energy Solutions Inc., the lead plaintiff in the suit, headquartered in Mission, Kan., with a trading office in Ohio, and marketing offices in California, Pennsylvania, and Virginia.

Why did Elam challenge the law? Elam isn't pushing clients to abandon Alabama Power. "We'd be more than happy to buy from them," he says. But with the experience gained at Enron and now at Solutions, he feels he can help electric customers buy more efficiently from utilities.

"We began selling swaps and option," he notes. "It became evident that utilities had no clue as to what they were buying. We watched them waste tons of money. If they don't know what they're doing, what about consumers? So we started working with municipal utilities, school districts, and other wholesale buyers, plus some big industrials. We think we can bring some ideas to help the utilities learn what their customers want."

Adds Michael Kessler, counsel for AES: "Customers might want to develop a consortium or buy power on an aggregated basis. We're working with a group of schools and munis in Pennsylvania. We might set up the same thing in Alabama, but we're not sure on whether we could under the law."

Alabama Power, meanwhile, is busy fighting its own demons. It could end up one day facing powerful competition from the Tennessee Valley Authority. In fact, TVA chairman, Craven Crowell, appeared on CNBC's Capitol Gains program on January 27 to criticize "territorial restrictions" in the electric industry and to promise to end federal funding for TVA to prepare for competition.

And, last August, Alabama Power won an important court battle to stop TVA's alleged practice of dealing with the power-marketer, LG&E Power Marketing Inc., to circumvent TVA's own territorial restrictions and market TVA power outside the "fence" established way back during the New Deal. See, Alabama Power Co. v. TVA, CV 96-PT-0097-S, Aug. 28, 1996 (N.Dist.Ala.).

Nevertheless, it was not the TVA threat that prompted passage of the bill, according to Dave Rickey, spokesman for Alabama Power. Instead, he says, the bill was needed to define clearly the power of the state public service commission to regulate private power contracts that bypass traditional utilities.

"All the PSCs in neighboring states have regulatory authority over private service contracts," says Rickey. "We assumed as much in Alabama, too, but the state supreme court said 'no' in 1988." (See, Coastal States Gas Trans. Co., Inc. v. Alabama PSC.)

"That's why we needed the statute ... to help the PSC deal with stranded costs."

I asked Rickey why stranded costs were so important for a low-cost utility like Alabama Power. In fact, Moody's famous 1995 study had put the company's stranded costs at only $215 million, well below Georgia Power and Duke Power (each at about $1.6 billion). (DOE ranked the state in 1994 as 14th-best in terms of low industrial rates.)

"It's not a mandatory process," advised Rickey. "If a customer decides to leave the system and we don't see any stranded costs, or if they are negligible, we won't fight it. We won't activate the process [under the law] unless we feel that stranded costs are significant."

But, when questioned, Rickey acknowledged that a customer's decision to build a cogeneration facility and go off line could still trigger the law. "The effect would be the same," he said. Other parties stressed this potential conflict with the Public Utility Regulatory Policies Act as playing a major role in their decision to sue. (Note: Alabama Power is building a cogen plant for Olin Corp., but all the power will go to the grid.)

No one has tested the new law yet, but the issue is hot. Adds Greg Elam: "From what I understand, they [Alabama Power] were pretty upset when we filed this suit."

Editor

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