Deregulation comes to power companies Non-utilities take a piece of the energy market

May 31, 1992|By Ross Hetrick | Ross Hetrick,Staff Writer

First there were the airlines and the railroads. Then came the telephone company and financial institutions. Now it's the electric utility companies' turn to get a taste of deregulation.

In ever-increasing numbers, non-utility companies are producing power for the nation's households, promising low rates to attract business.

The push for a more competitive energy market received a major boost this month when Maryland's Public Service Commission ordered Baltimore Gas and Electric Co. to take bids from outside producers on new electric generating capacity. Before, BG&E either built the plants itself or negotiated privately with other companies.

And the trend should gain even more momentum as Congress moves to revise a 57-year-old law governing public utilities.

One of the chief selling points for non-utility power producers is the potential savings to ratepayers. Merribel S. Ayres, executive director of the National Independent Energy Producers, contends that increased competition in generating power could mean a savings of 5 percent to 15 percent for consumers. Non-utility producers also say that if something goes wrong, and they cannot generate power at an agreed-upon price, their stockholders pay -- not consumers.

Some -- but not all -- utility companies oppose the new system. They warn that lower prices may prove illusionary. And %o consumers may unwittingly sacrifice reliable service, they say.

"It's the beginning of change and it's not going to be a change for the good," said Graham B. Painter, public affairs manager for the Houston Lighting & Power Co.

Until the late 1970s, with few exceptions, utility companies sold electricity generated at their own facilities. But the playing field changed in 1978 with the passage of the Public Utility Regulatory Act, which allowed cogeneration plants -- those that simultaneously produce electricity for the utility and steam for area industries -- into the power-generation business.

By 1986, non-utility generation had a capacity of about 25,320.6 megawatts, according to the Edison Electric Institute. A megawatt is a million watts. In the next five years, the amount of power generated by non-utility producers jumped by 78.2 percent to 45,126.7 megawatts, though it still accounted for only percent of the power produced in the U.S.

Non-utility companies built about half of the generating plants that began operation over the past two years, according to the National Independent Energy Producers. That boosted the amount of electricity produced by independents to 8 percent of the nation's total -- a percentage expected to double in the next decade, the organization said.

And this trend promises to accelerate if Congress passes the National Energy Security Act, which would dramatically change the way utilities do business. The bill passed the Senate in February; the House of Representatives approved a different version Wednesday. The measures now go to a Senate-House conference committee to resolve the differences.

Part of that bill would amend the Public Utility Holding Company Act of 1935 to allow non-utility companies to build power plants other than cogeneration facilities. Another provision would permit independent energy producers to transmit their power over the lines of one utility to another.

While actual regulation of electricity rates would still be in the hands of state regulators, many of the factors that go into setting those rates, including a company's capital base and financial viability, could be affected by the new federal laws.

The issue has divided the utility industry. Some companies believe the industry is heading down a dangerous road. Others foresee a healthier, more competitive business.

"It's going to restructure the utility industry, but the customer will never see it," said Daniel V. Flanagan Jr., coordinator for the Utility Working Group, which represents 37 utilities that support changes in the law.

A key reason for their support: Utilities will get a chance to shift the risk of building power plants to other companies. This is particularly attractive in light of the fiascoes of the late 1970s and early 1980s, when some utility companies were burned by building for future demand that never materialized. Others suffered overruns on large generating plants, particularly nuclear power plants.

"Its called divvying up the risk," Mr. Flanagan said. Many of the utilities supporting the group, including BG&E, have independent power subsidiaries that could benefit from opening the field, he said.

As to reliability, Mr. Flanagan said that issue has been settled by studies by the General Accounting Office and other agencies that show independents to be as reliable, if not more, than the established utilities.

But other utility companies do not share this confidence.

Houston Lighting & Power, for example, gets 27 percent of its power from independent producers -- the result of pressure from state regulators, Mr. Painter said.

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