If legislators and energy regulators aren’t careful, theelectricity industry could end up as a deregulated monopoly ratherthan one that offers customers real choice, representatives of keyelectricity trade groups warned last week.

Specifically, state regulatory actions aimed at opening up theirrespective power markets “are fraught with problems,” said JohnAnderson, executive director of the Electricity Consumers ResourceCouncil (ELCON). And, “that’s being nice.” Some of the snafus, hecited, are mandatory rate reductions, full recovery of strandedcosts, inadequate mitigation of market power and limited geographicmarkets.

California has the “unique experience” of having all of theseproblems, he said at GasMart/Power ’98 in New Orleans. As a result,Anderson thinks the retail customer-choice effort in that state hasbeen a “flop” so far. When there’s “32 million people in California[and you] give them an opportunity to shop, [but] only 40-60,000decide to do it, it’s a flop.”

Anderson and others particularly are opposed to mandatory ratereductions for customers because they limit potential margins forpower marketers. “It’s no wonder that Enron has dropped out of the[retail power] market” in California, Anderson said. “When you comeup with a situation where [there’s a] guaranteed loss for amarketer, why in the world would they go into [that] market?” heasked.

Enron “backed out” of the residential power market in bothCalifornia and Massachusetts because the two states, as part oftheir restructuring efforts, mandated “right off the bat” 10% ratereductions, noted Lynne Church, executive director of the ElectricPower Supply Association (EPSA). This left “very little margin formarketers to come in and compete.” On the other hand, Pennsylvaniahas been a “real success story,” she said. “Instead of a rate cut,they set a rate cap. Then they came up with a generation credit,[about] 3 « cents, which allowed marketers to compete.”

Regulatory actions ordering full recovery of stranded costs – amajor issue for Anderson – also “stymies markets. Again, I’m beingnice,” he said. “Every time you hear the term stranded costs,replace it with ‘utility mistakes,’ and then ask the same question- should customers pay for utility mistakes?” ELCON isn’tadvocating that electric customers shouldn’t pay for any of thesecosts, he noted, but it believes utilities should bear some of theburden.

He also addressed the “merger mania,” and its potential impacton a restructured market. This is a “big issue. It’s nice being theking. And if you’re the king over a big universe, it’s better thanbeing the king over a little universe. But the problem is mergersnearly always increase market power,” Anderson noted.

“Until there is vertical disaggregation in the electric industry[that] makes it more like the gas industry, until transmissionlines are in separate companies like gas pipelines are in separatecompanies, we [will continue to] have a tremendous market powerproblem that needs to be dealt with,” he told energy executives.

The best way to obtain customer choice is through federallegislation, Anderson believes. “I urge anybody that wants to havereal competition in the market to start pushing” for legislation atthe federal level. Most trade representatives agreed that thechances for federal legislation are slim this year, but willimprove greatly in 1999.

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