Energy Policy Act

Utility regulators in Minnesota and Nevada have opened dockets on electric utility restructuring, citing (Minnesota) the Energy Policy Act of 1992 as having lifted barriers to wholesale competition, and seeking (Nevada) recommendations on alternative ratemaking.

The Minnesota Public Utilities Commission (PUC) said it would view open competition as "one part of a continuum of possible change," from traditional vertical integration to full deregulation.

Last Spring I heard superintendent William "Billy" Ray tell how the folks down home at his Glasgow, KY, municipal utility took a flier on the information superhighway. They gambled and won by constructing a new utility-owned cable television system to offer competitive TV service to their municipal electric customers.

One need only reflect upon the primary sponsors of current efforts to repeal section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) to begin to understand the folly of these efforts for the nation. The sponsors do not represent electricity ratepayers, who are claimed to be overpaying billions of dollars as a result of PURPA.

Moody's Investors Service has released a report, Moody's Outlines Risk Profile for Electric Cooperatives, which finds that the era of deregulation will lead to an average credit quality decline for generation and transmission cooperatives (G&Ts), just as it will for investor-owned utilities (IOUs) over the next five to 10 years. The report stresses that both G&Ts and distribution cooperatives face increased business and financial risks.

The winds of competition are blowing. Some find them chilling; others find them exhilarating. Deregulation calls on competitive markets to stand in for regulatory decisions, giving more choice to customers, reducing costs dramatically, and requiring new capabilities.

Competition is already transforming major portions of the electric industry.

Imagine you're the principal energy buyer for a national chain of managed health care centers, with a $200-million annual energy tab. Top management asks you to assess how the chain can cut its energy bills.

You turn to your local electric and gas utility, which talks a lot about customer service, but doesn't have much to show for it yet.

B. Jeanine Hull

President, Electric Generation Association

Vice President & General Counsel, LG&E Power Inc.

PURPA is not the issue; competition is. PURPA has introduced competition by demonstrating that the generation of electricity is not a natural monopoly. PURPA's faith in competition has proven itself in the form of lower-priced electricity for ratepayers. PURPA has also promoted fuel diversity by creating incentives for utilities to consider renewable fuel options for portions of their capacity needs.

The electric power industry is mutating all over the globe. We can analyze, study, and compare, yet no single and universal model has emerged in any country. Each has developed a solution of its own.

The restructuring of the U.S. electric power industry has provoked a strong response here in Canada, but few seem to care that a U.S. solution could prove ill-advised on this side of the border. The structures of electric industries are fundamentally different in both countries.

Stranded costs are those costs that electric utilities are currently permitted to recover through their rates but whose recovery may be impeded or prevented by the advent of competition in the industry. Estimates of these costs run from the tens to the hundreds of billions of dollars. Should regulators permit utilities to recover stranded costs while they take steps to promote competition in the electric power industry?

Virginia Power (VP) has asked the Virginia Corporation Commission to prevent a municipality, the City of Falls Church, from ousting VP as the provider of electric service (Case No. PUE9500). VP says the city notified the utility that it intended to establish either a municipal purchasing or marketing entity or an electric utility that would own or control enough transmission or distribution facilities to avoid the "sham wholesale transaction" prohibition of the Energy Policy Act of 1992.