Approximately 20 electric-utility deregulation proposals are currently pending in Congress, all offering varying types and degrees or reform. The Clinton Administration's proposal, entitled the "Comprehensive Electricity Competition Act," was introduced on the Senate floor on July 10, 1998. The Administration's proposal contains provisions designed to address many of the thorny issues that fall under the gambit of electric utility deregulation. An analysis of some of the key provisions of the proposal, as well as the opposition sentiment, provides a snapshot of the legal issues facing Congress as it seeks to open up the industry to competition.
At the center of just about every effort to foster competition in the electric utility market is the repeal of two out-of-date laws. The Administration proposal is illustrative, as it seeks the repeal of the Public Utility Holding Company Act ("PUHCA"), 15 U.S.C.A. § 79 et seq., a 1935 law that many believe is the single greatest obstacle to competition. PUHCA currently prevents non-utility businesses from diversifying into the electric utility field. PUHCA forbids utilities from diversifying geographically, requiring that all holdings be geographically integrated. Some industrial customers and consumer groups have opposed repeal of PUHCA, citing its consumer protections that may be lost under deregulation. Assuming competition is mandated to fill the PUHCA vacuum, however, repeal is likely.
Next on the deregulators' "hit-list" is the repeal of certain sections of the Public Utility Regulatory Policies Act of 1978 ("PURPA"), 16 U.S.C.A. §2601 et seq., a law spawned by the energy crisis of the 1970's. In particular, policymakers wish to purge PURPA's "mandatory purchase requirement," which requires electric utilities to purchase electricity from suppliers that meet certain efficiency and source standards, whether or not the electricity is needed by the purchaser. Further, PURPA forces the purchaser to pay a set amount, in the form of "full avoided cost," the early-1980's calculation of what the purchasing utility would have to pay if it generated the power itself. The purchasing utility must pay this price regardless of the actual market value of the power, and the extra cost is typically passed on to consumers. Here, the main opposition to repeal is from environmentalists, who favor PURPA's mandatory promotion of such renewable sources of electricity as solar and wind power.
Another major roadblock to deregulation is the issue of "stranded costs." These are the costs previously incurred by utilities in developing their facilities, and it will be very difficult for utilities to recoup these costs by passing them on to consumers in a non-regulated, competitive marketplace. Utilities seek a legal guarantee from Congress that they will be able to recover these costs as a prerequisite to competition. Other bills, such as S. 1401 introduced by Sen. Dale Bumpers of Arkansas, guarantee utilities the right to pass stranded costs on to consumers. Presumably, they will do so before competition is fully implemented, and consumers have a less expensive option. The Administration proposal contains no such guarantee, although it does provide that the Federal Energy Regulatory Commission ("FERC") "may" authorize stranded cost recovery.
Other legal (and political) issues are raised by efforts to use electric utility deregulation to further social and environmental agendas. For example, the Administration's proposal includes provision for a $3 billion/year "public interest fund," which appears to be a "utility tax" funded by electric consumers. According to Secretary of Energy Federico Pena, this fund will "provide matching funds to States and Indian tribes for low-income assistance, energy-efficiency programs, consumer information, and the development and demonstration of emerging technologies." Conservatives oppose this provision as an unacceptable federal mandate on the states, and unnecessary expansion of the FERC's powers.
Yet another difficult legal issue is raised by the Administration's efforts to include new caps on nitrogen oxide emissions in its competition bill. Critics view this effort as an "end-run" around the constitutional requirement that the Senate ratify all treaties entered into by the United States. Specifically, nitrogen oxide is one of the designated "greenhouse gasses" limited by the global warming treaty recently signed by many nations in Kyoto, Japan. The Administration has not yet submitted the treaty to the Senate for ratification, fearing that it will not be approved because of concerns about its adverse economic impact. The Administration's deregulation proposal may face a similar fate if these provisions are not removed.
As discussed above, numerous legal and political obstacles must be overcome before a national electric utility deregulation plan emerges from Congress. In light of the current scandal presently paralyzing Congress, it may be wishful thinking that a bill will be agreed upon this year. The Administration's proposal has been referred to the Senate Committee on Energy and Natural Resources, and no hearings on the bill are presently scheduled. The states will likely be left to their own devices in fostering competition amongst utilities, at least until next year. Until electric utilities are freed from the out-of-date restrictions of PUHCA and PURPA, however, a truly open national market remains a distant goal.