Analysis: New calls for ‘re-regulation’

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United Press International

Enron‘s dramatic plunge into bankruptcy this week has stirred up visceral emotions over more than just the images of hundreds of employees at Enron‘s Houston headquarters being cashiered just in time for Christmas.

The unceremonious pratfall by one of the world’s premier energy companies has been seized by some consumer advocates in California as a rallying call for the return of a tightly regulated electricity market in the Golden State.

Enron spearheaded a deregulation system that added expenses, but no consumer benefits,” opined Douglas Heller, a consumer advocate for the Foundation for Taxpayer and Consumer Rights. “The lesson from Enron‘s demise is that electricity deregulation is a disaster and electricity systems need oversight.”

Backers of deregulation still see a world in which healthy competition and a robust infrastructure produce bargain prices for consumers. Critics such as Heller see deregulation as a miserable flop with a growing list of sound reasons as to why it should be consigned to the rubbish heap of history.

While it is unlikely that Enron‘s troubles will reverse the trend toward restructuring and deregulation, they could give politicians another reason to proceed cautiously.

California’s unpleasant experiences with the electricity commodities market a year ago undoubtedly left a bad taste in the mouths of both consumers and lawmakers; the state’s utilities found themselves as buyers in a red-hot bull market and could do little but watch their tabs with Enron and other power sellers steadily swell.

As a result, Pacific Gas & Electric Company filed for bankruptcy while Southern California Edison teetered on the brink for several months. Consumers were forced to pay higher and higher rates while the state budget surplus was wiped out while the Department of Water Resources then took over the burden of purchasing electricity.

“When the result of an experiment is rolling blackouts, higher consumer rates, one utility bailout, one utility bankruptcy and the collapse of one of the nation’s largest corporations, then the experiment has failed,” said Heller.

Critics of deregulation say the power crisis in California was a logical result of allowing the power industry to charge whatever they could get for their electricity rather than limiting them to a cost-based price that covers the cost of generation and provides the producers with a “reasonable” profit.

While the role California played in Enron‘s troubles remained murky as of Tuesday, the Texas company’s simmering financial problems in hindsight offered a likely reason for its insistence that the Bush administration not take any steps to cap wholesale power prices and that California utilities pay their mounting bills.

Capitol Hill was abuzz Tuesday with calls for investigations into the Enron debacle, but whatever those reasons turn out to be, Heller sees the situation as reason enough for state regulators to step in and re-assume control over the electricity market.

Enron‘s bankruptcy, after months of profiteering in California, shows that our energy system needs adult supervision,” Heller said. “The power companies that promised consumer savings from deregulation … cannot be trusted to take care of energy service.”

The trend toward deregulation of power markets at the state level had downshifted this year in the wake of the California turmoil, however it is proceeding forward and is still seen as a done deal by officials in government and industry.

“We think it is important that customers and regulators understand that the retail electricity industry, and the energy sector as a whole, is bigger than any one player,” said Clem Palevich, president of AES NewEnergy, a retail electricity provider with commercial customers in 13 states.

“I would invite anyone who, in light of recent events, believes competitive markets are dead and that deregulation cannot work, to visit states such as Massachusetts, Maine, Texas, Ohio, and several others that have successfully opened their markets to competition,” Palevich continued. “These states are proving every day that competition brings customers lower prices, and a higher quality of service without affecting reliability.”

Some lawmakers and regulators are convinced that the win-win situation Palevich and other deregulation boosters see is still possible, but first there must be a major expansion and reorganization of the high-voltage transmission systems so that more power producers will be able to get into the market and ensure competitive prices.

The Western Governors Association agreed at their winter meeting in El Paso this week to include Mexico and western Canada in their future discussions of regional energy issues. The resolution, Arizona Gov. Jane Hull said, “recognizes the reality of increasing energy links through North America.”

Governors around the nation, however, have been leery about surrendering their current powers to regulate the construction of power lines in their states in order to accommodate the huge new regional transmission organizations that the Federal Energy Regulatory Commission and many industry players see as key to an overhaul of the U.S. power industry.

So far, the deregulation bandwagon continues to roll. However, if it hits many more bumps in the road like California and Enron, a lot of its passengers may decide the ride isn’t worth the discomfort.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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