U.S. oil and gas producers should support an effort in Congress this month to pass legislation on deregulation of the retail electricity business. Now a state-by-state process, electricity restructuring needs a federal push.
Oil and gas producers have much at stake. As users of electricity, they would benefit from the overall cost cuts promised by deregulation, if handled properly. They also will profit from the boost that electricity deregulation should give to demand for natural gas.
Completing the task
Congress needs to complete what it started in 1978 when it passed the Public Utility Regulatory Policies Act (Purpa), which allowed generators other than utilities to enter the wholesale power market. It followed Purpa with the Energy Policy Act of 1992, opening access to transmission networks and exempting some nonutilities from restrictions of the Public Utility Holding Company Act of 1935 (Puhca). The Federal Energy Regulatory Commission advanced restructuring at the wholesale level in 1996 with Order 888, which gave nonutilities access to transmission service, and Order 889, which required utilities to electronically disclose the availability of transmission capacity.
All that provided the statutory and regulatory foundation for wholesale trade in electricity. But the market has been slow to develop. There has been much talk but too little construction on the wires and generators essential to the fluid interstate commerce envisioned by wholesale restructuring. This summer's power outages and delivery failures testify to the deficiency.
The wholesale market isn't developing as it should because progress toward retail competition has been slow and uneven. Too much uncertainty lingers. Investors unsure about the rules of retail competition are holding back.
States, of course, need to follow their own interests. Some of them have little motivation to deregulate their electricity industries. As of Sept. 1, the legislatures of 21 states had enacted restructuring legislation. Regulatory agencies in three other states had issued comprehensive restructuring orders. States not yet acting tend to be those where average electricity costs were lowest before restructuring began.
Where states don't act, Congress must. Congress can't tell states how to deal with state affairs. But it can promote federal interests, which in the case of electricity means promotion of interstate trade in electrical power and instantaneous communication about price. It is clearly in the national interest to have a comprehensive grid and flexible trading system able to deliver power on demand. That can't happen where markets remain partitioned into franchise areas served by monopolies.
Furthermore, many unsettled restructuring issues either can't be addressed or receive uneven attention at the state level. Among them are anticompetitive provisions of Purpa and Puhca. Other such issues include market structure and rules, federal vs. state jurisdiction, comparability of service, and system reliability.
Restructuring bills, including an environmentally oriented one from the Clinton administration, have been introduced in both the House and the Senate. In the Senate Energy and Natural Resources Committee, members of both major parties in July swapped outlines for legislation in an effort to develop a broad bipartisan proposal. Several bills, meanwhile, have emerged in the Energy and Power Subcommittee of the House Commerce Committee. Chairman Tom Bliley (R-Va.) wants the subcommittee to complete legislation by Sept. 21.
Work will have to progress at least that fast if Congress is to pass legislation in the current session. Oil and gas producers should encourage the effort and work to keep it focused on the promotion of nationwide choice, competition, and trade in electricity. Future growth in demand for natural gas depends on it.