Utilities' power grid up for grabs Proposals would vastly expand deregulation.

October 28, 1991|By New York Times AtB

Access to the power transmission grid, a key element of the utilities' monopoly control of the nation's electric system, is up for grabs for the first time in the history of the industry.

As part of the National Energy Strategy package moving through the Congress, a House subcommittee has approved provisions that will require utilities to carry electricity from independent buyers across the utilities' territory to independent sellers, even if the utilities lose electric sales as a result.

The version of the bill that the Senate is planning to take up this week does not have the same provision.

But the Senate version would repeal a law concerning who may own power plants, the Public Utility Holding Company Act of 1935, and many other participants in the electric market are demanding access to transmission in exchange for the repeal.

Taken together, these legislative proposals would vastly extend the deregulation of the utilities that Congress started in 1978, opening the transmission system and freeing participants to build power plants.

"A key to whether there is any real competition at all is transmission," said Larry Hobart, the executive director of the American Public Power Association, many of whose members are small utilities that serve commercial and residential customers with power they buy from larger utilities.

"If you have an independent power producer, that's like a dot inside a circle that is the service territory of an investor-owned utility. We're another dot, outside the circle. Unless you can tie them together with a transmission line, it's of no use to us."

The producers also seek more competition, arguing that they must be freed from "monopsony," a variation of monopoly in which there are many sellers but only one buyer.

Under the Public Utilities Regulatory Policy Act of 1978, independent producers now sell to the utility in whose territory they are situated at "avoided cost" -- the price that the utility would have to have paid to make the power for itself.

Many independent producers think they could do better if they could offer their product more widely.

The utilities argue that their control of the transmission system is essential to the stability of electric supply.

At the Edison Electric Institute, the trade association of investor-owned utilities, Mary Kenkel, a spokeswoman, said the demand to open the transmission system came from "a bunch of people wanting to take something without paying for it."

Many investor-owned utilities see no advantage to a proliferation of independent producers, because no one can build power plants more cheaply than they can.

But some utilities would like to see more such plants, because they themselves would like to build them, either inside their territories or far afield. That group of utilities is also seeking repeal of the holding company act, which puts onerous regulation on utilities doing business in more than one state.

Experts say that opening the transmission system would remove a large part of the monopoly power of utilities, turning transmission lines, now private property, into something akin to common carriers.

If the market were thrown open to competitors, the amount of power traded that way might be small, but it would go far toward determining electric prices for everyone.

When President Bush proposed the National Energy Strategy earlier this year he called for such open access, and there is substantial support in Congress.

"It's got to be opened up, just like the phone system," said Sen. Timothy E. Wirth, D-Colo. Giving small producers and small utilities more access to transmission would mean big improvements in competition and efficiency, he said.

In a possible model for opening the transmission system, in two recent cases courts or regulators have required open access as a condition of utility mergers.

Lurking behind both the holding company act, which the Senate bill would repeal, and the transmission access issue is the question of whether the utilities' three traditional roles -- as generators, transmitters and distributors of power -- should be split up.

Independent producers say access will create competition that lowers price for everyone. Traditional utilities say that with access, independent producers can go "cherry picking," stealing away the best customers, like major industrial plants, and leaving the utilities with generating stations with no one to serve, creating "stranded investments."

The cost of those plants will have to be spread among small consumers, they say, who will be captive and heavily saddled.

"You've built to satisfy all customers equally, and now these customers can go elsewhere, so who pays for all that investment?" said Dick Disbrow, the chairman of American Electric Power, a Midwest holding company.

If the cost of idle plants is spread among the remaining customers, he said, the price that the traditional utility must charge will rise further, creating an even bigger cost differential.

On the other hand, Public Service Co. of Indiana favors transmission access and has proposed opening its system in exchange for the right to sell its surplus power elsewhere at whatever price it can get.

"Injecting competition into regulated industries is good public policy," said James E. Rogers Jr., the company's chief executive, in a speech in Chicago earlier this year.

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