S&P Survey: CA to Slow Spread of Electric Dereg

If there was any question remaining that the California crisis would have a negative impact on the electric deregulation progress around the rest of the nation, it has been answered, and the response is 'yes.' Three quarters of the utility regulators across the nation polled said that the financial, reliability and political consequences of the California snafu will slow, or even halt, the spread of deregulation to their states, according to a recent national survey created by Standard & Poor's and conducted by RKS Research & Consulting.

Survey results show 46% of state commissioners believe consumers are better off with the regulated monopoly model, while 44% favor the deregulation of electric supply. Although it is a thin margin, the percentages greatly mask regional sentiments, such as seven in 10 regulators in the Northeast favor deregulation, while six in 10 Midwestern commissioners prefer the old monopoly system.

The "Survey of State Regulators" consisted of 97 telephone interviews with commissioners and staff in 46 separate jurisdictions between December 2000 and January 2001. Of these results, active commissioners accounted for 78 of the completed hour-long interviews, a 4-1 ratio over staff members.

"These findings make clear that events in California are having profound effects on the pace --- indeed, the support --- of deregulation in the minds of regulators," said David J. Reichman, president of RKS. "As they grapple with the realities of energy prices, system reliability, environmental aspirations, and consumer protection, commissioners are becoming less optimistic and supportive of increased electric competition."

In addition, RKS said the study revealed that many regulators feel they lack adequate regulatory tools to deal with all of the issues related to restructuring energy markets. Regulators also labeled the current transmission system that delivers electricity as "barely adequate." Regulators voted that they prefer regional transmission organizations (RTOs) for assuring power delivery into the future by a 2-1 ratio, but 70% believe state regulators must play a larger role in the governance of RTOs. Only 40% of the respondents believe their commissions have the powers, tools or resources to prevent a repeat of the crisis like the one in California in their own jurisdictions.

"These scores lead me to believe that commissions in several states preparing for deregulation will seek expanded regulatory authority to deal with the consequences of restructured markets," said David S. Cohen, former chairman of the New Mexico Public Utilities Commission and an adviser to RKS and Standard & Poor's on the regulatory responses. "This seems even more likely now that this survey illustrates the uncertainties within the regulatory community over the basic question of whether deregulation of electric supply benefits customers."

Another part of the study showed that reliability and transmission and service issues top the list for regulators now, and in the future, while pricing and utility financial condition were near the bottom of present and future concerns. "This limited interest in the financial effects of deregulation on utilities is disturbing," said Cohen. "Events in California --- particularly the actual and threatened bankruptcy of two of its utilities --- together with the attitude of regulators expressed in this survey, may portend a difficult future financial condition for electric distribution companies in a restructured marketplace."

Regarding the future of distributed generation, RKS said regulators voted an overwhelming 9-1 margin in favor of the rapid introduction of distributed generation technology to provide a source of power off of the grid. However, these same respondents said they expect to play a lead role in managing the interconnection and pricing issues as on-site power is introduced to the market, according to the survey.

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