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UtiliCorp: 'Patchwork' Unbundling Slow to Develop

UtiliCorp: 'Patchwork' Unbundling Slow to Develop

Despite the advent of retail gas and electric competition in states such as California, Georgia, Ohio and Pennsylvania, UtiliCorp United officials do not regret their decision earlier this year to shelve retail commodity marketing and disband the EnergyOne partnership with PECO Energy. The outlook for retail competition is still quite bleak, UtiliCorp Chairman Richard C. Green, Jr. said last week at a press briefing in Washington, D.C. The status of the retail market has not changed, and regulators and legislators still appear headed in the wrong direction.

Although 18 states, representing 46% of the U.S. population, are implementing open access this year, with most reaching full implementation by 2003, that cannot be considered the fast track to "robust" retail competition, according to Green. "The bottom line [is that] we may very well end up facing something far short of the robust competition that can provide the broad range of benefits the American consumer expects and deserves," he said. The states are still headed toward a "patchwork quilt" of regulations that will produce at best "light competition."

"And while a tremendous burden to us, it may be politically expedient for Congress to simply permit the patchwork to continue." Just the threat of competition has already forced power prices to decline. Competition in the wholesale power market will put added pressure on prices. "So there will be an irresistible temptation to believe.that we in fact have robust competition" when, in fact, we don't.

Evidence that the industry is beginning to realize competition is a long way off can be seen in the recent decline of merger activity. "With deregulation essentially not moving forward, the urgency to consolidate, to think about those competitive strategies, is not there," said Green. "You're not compelled to move."

Green offered three suggestions for regulators and legislators: "What they really need to do is.recognize that as soon as they even hint that there is any competitive market coming that the spirit of competition begins right there. The competitors are right there in their face, smiling, deciding how they can skew the market structure in their favor. And that could tilt and delay a good market going forward. Secondly, they need to go over the wall and understand that competition is the best regulator of the industry going forward. And thirdly, they need to recognize where the burden of proof should be. The burden of proof needs to be with the one that offers the restriction, [the regulators]. To prove that this restriction does enhance the competitive market as opposed to cause an advantage for some of the competitors in the market."

In an interview with NGI, Green said the overriding message is that the states need to get on the same time line and start with a "common path of rules so that there's definition in the marketplace." Exactly what those rules should be he wouldn't say. But Green thinks the incumbent utility should be able to compete in retail sales.

"It needs to start with some framework legislation at the federal level, and I say framework because I'm not saying mandates. I think it's important that it is recognized that we're talking about a national marketplace. I am pessimistic that a lot will occur soon. I think inevitably it will happen over time. It will just take long. I think next year there will be some restructuring legislation, but I think it will be a very small first step. But at least it's a first step."

Rocco Canonica

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