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California and the West

Electric Power Deregulation Gains Steam

Energy: California crisis fails to dissuade proponents in Washington, who offer stack of free-market proposals.


WASHINGTON — Despite problems stemming from utility deregulation in California, momentum is gathering in Congress to loosen some of the rules of competition in the electric power industry.

A plethora of electricity-related bills, some with bipartisan support, have been debated in the last year in the House and Senate, with active encouragement from the Clinton administration. These debates have set the stage for possible action in the next Congress.

One proposal that has gained steam would repeal a New Deal-era statute that aimed to limit the growth and business activities of large corporate utilities. Another would seek to create more wholesale competition by easing barriers to transmission on the nation's interstate power grid.

Some of the key players in the federal debate will appear in San Diego today as the energy and power subcommittee of the House Commerce Committee conducts a fact-finding hearing on the electric rate crisis that struck there in the wake of California's deregulation of electricity markets.

The state's experience, in fact, has led some to caution against the push for national deregulation. Rep. Bob Filner (D-San Diego) warned the House last week that it should look closely at what has happened in the area he represents, where electric bills doubled or tripled almost overnight.

"We are the poster children for the nation," Filner said. "Deregulation cannot work when the basic commodity is controlled by monopolies. Take heed, Congress."

Until now, congressional committees have trudged through the arcana of electric power regulations with little public notice. But lawmakers influential on energy policy acknowledge that California's rush to restore order to wildly gyrating electricity markets, including a state-approved emergency rate rollback for San Diego Gas & Electric Co. customers, has cast a fresh spotlight on their work.

"Clearly, all of the problems that have arisen in California need to be better understood before we take real action here in Washington," said Sen. Jeff Bingaman of New Mexico, the top Democrat on the Senate Energy and Natural Resources Committee.

But Bingaman said that deregulation on a national level could work as long as power producers have "free and fair" access to the nation's transmission lines.

Even more bullish on the issue, Sen. Phil Gramm (R-Texas) said a consensus is growing that federal action is needed. "California has not proved that markets don't work and you can't have deregulation," Gramm insisted. He said the state's problems stem in part from a dearth of investment in electric power generation.

Gramm knows that it can take years to deregulate a major industry. He shepherded a major, multiyear effort that last year led to repeal of New Deal-era restrictions on the nation's financial services firms.

Like that act and the 1996 telecommunications deregulation, any successful overhaul of the nation's many-layered laws governing electric power would take painstaking work to resolve partisan and regional differences and, especially, the conflicting aims of special interests.

Judging from the lobbying activity of utilities and major electricity customers, the battle in Congress has stepped up considerably. Congressional Quarterly last month identified at least seven coalitions that are active on deregulation, including one representing investor-owned utilities--the Edison Electric Institute--which has spent more than $40 million in three years to lobby Congress.

Investor-owned utilities produce about three-fourths of the nation's electric power, according to the institute, and have an enormous capital investment in generation and transmission facilities.

Others that have spent millions in lobbying include rural electric cooperatives and public power agencies.

Political donations connected to utility interests also have increased as the issue has advanced. Campaign contributions from electric utilities to national party organizations and federal candidates in this election period total more than $12 million to date, up from $5.4 million in 1993-94, according to the Center for Responsive Politics in Washington.

What do all these special interests want? Most players agree that a starting point is repeal of the 1935 Public Utility Holding Company Act. That law, meant to limit utility mergers, has restricted the growth of large utilities and now is widely seen as an impediment to competition. The administration--which prefers to call its effort "restructuring" rather than "deregulation"--has endorsed repeal as part of a larger package that would give federal regulators authority to review the company records of monopolies and curb abuses.

Beyond that, goals diverge. Many hurdles remain before legislation would be ready for passage, although administration officials and lawmakers say that significant progress has been made.

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