From Site Selection magazine, September 2000 U T I L I T Y     D E R E G U L A T I O N

Deregulation Drives Spate of Pilot Programs b y     M A R K     A R E N D Whether business and industry actually will benefit from the states' efforts to deregulate electricity access and consumption remains elusive. Stranded costs are the rub. Plenty of brainpower is being applied to the merits of electric utility industry deregulation, or restructuring to be more accurate. But the jury is still out in most US states that have deregulation plans in place as to whether the effort was worth it to consumers of electricity. After all, the airline industry -- certainly one of the most regulated of US industries -- was "deregulated" in 1978, and most airline passengers today would be hard pressed to cite the ways in which that event made their current air travel experience more efficient or economical. At least passengers weren't expected to pay airlines' so-called stranded costs -- those expenses incurred prior to deregulation in efforts to improve their service. (North Carolina is in the midst of sorting out how to pay off $5.5 billion in debt, stemming from nuclear plant investments made in the 1970s, that is keeping utility rates substantially higher in cities under the jurisdiction of two municipal power agencies.) The Council of State Governments lists some potential benefits of deregulation that it might be helpful to consider in light of state pilot programs now in place. Are programs affecting your business -- or deregulation in general -- producing any of the benefits listed below? Ideally, deregulation: provides consumers the power of choice reduces electricity rates, allowing for economic development unleashes innovations in products and service replaces a regulatory system that creates uneconomic investments (stranded costs) and provides few incentives for utilities to make economically sound decisions answers power supply problems with new generation sources. At the same time, the Council cautions, beware of programs that open the door to adverse cost ramifications. These include: greater price volatility the danger of dominant utilities or unregulated monopolies eliminating potential benefits a negative impact on the reliability of the power grid fraudulent or incompetent suppliers entering the market a threat to key public policy goals, such as affordable access to electricity and environmental protections. Deregulation Soup Individual states are all over the map, as it were, with respect to their restructuring status. The Energy Information Administration map shown here is current as of July 2000. Montana is fairly well along on its restructuring, with laws on the books as of 1997 that direct supply competition to be in place for large customers by 2004. Pilot programs for small customers are in place. The state's Public Service Commission is among those grappling with stranded costs issues. Arizona's program calls for $350 million in stranded costs to be recovered through a competitive transition charge in place through 2004. Large customers using three megawatts or more of electric power will see price reductions of 5 percent by 2002. Texas has extensive restructuring under way dating to legislation signed by Gov. Bush in June 1999. Among other provisions, it authorizes utilities to recover stranded costs, retains regulation of power transmission and distribution, permits utilities to refinance $3.3 billion in debt with low-interest bonds and charge consumers fees to make the payments and forces older power plants to clean up emissions by Sept. 1, 2003. And Illinois's deregulation plan is actually head of schedule in some ways. Commonwealth Edison was required to begin competition for commercial and industrial customers by Oct. 1, 1999, which it did. It made retail access to all industrial customers available in June 2000, four months earlier than planned. The state must cease collection of stranded-cost transition charges by 2006. A more comprehensive description of state deregulation programs can be found on the Web at a variety of sites. One of the most thorough is (www.energy.com/Resources/Deregulation_Status).

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