Capitol Offenses

De-Reg or Not De-Reg


Can falling prices hurt consumers? Maybe so, if the electric companies have their way with the Legislature on deregulation. Enron, Texas Utilities, and the other big utility companies want you to believe that utility deregulation is inevitably in the consumer’s best interest. But that’s only half the story. Deregulation has the potential to be a boon to Texans – but according to public-interest watchdogs who keep an eye on regulatory matters, the bills currently under consideration at the Lege are a bust.

“Utility deregulation” is in fact a catch-all term, which for this session refers specifically to two bills: House Bill 349 (proposed by Dallas Democrat Steve Wolens) and its weaker derivative, Senate Bill 7 (by Waco Republican David Sibley). Both proposals would remove significant state limitations on the ways the utilities do business. In pro-business theory, “less regulation” leads to “the free market” which inexorably leads to “lower prices.” However, in this case, the free market requires some help; the current Wolens/Sibley plan would freeze electricity rates beginning September 1 for five years, thus providing a window of opportunity to would-be competitors. At the end of the freeze period, frozen prices would be cut by 5 percent, and then price competition would begin. This plan requires splitting the utilities into three distinct functions: generation, transmission, and distribution. The first and last would be open to competition, while (for reasons of practicality) the state would continue to regulate transmission. By “open to competition,” the state intends that no single utility company would have enough market share to exercise an inordinate control over the market: that is, Texas Utilities would have to sell some of its power generation plants. How much market share T.U. currently controls – and thus how many plants they would have to sell – is a contentious issue.

But the general ideas are just as contentious as the details. Not everyone likes the idea of deregulation achieved through greater (albeit temporary) regulation. Many free market and industry groups disagree with the legislation as written. According to the Wall Street Journal, “T.U. officials vehemently oppose the proposal and vow that they will fight the deregulation bills if they include language forcing the sale of power.” On the other hand, the opposition of industry groups does not imply the support of consumer advocates. Tom “Smitty” Smith of Public Citizen, for example, has serious complaints about the currently proposed legislation.

Smith readily acknowledges that deregulation could reap some advantages for consumers. Among the potential benefits:

substantially lower prices for energy consumers;scheduled billing to help consumers equalize utility bills year-round;moves toward more environmentally-friendly power sources; andthe availability of “steady-state power” for those who need it.

However, Smith argues that currently-pending legislation will not necessarily deliver these benefits. One late-breaking improvement was the addition of “pretty good language on pollution,” that would provide funding for the utilities to reduce nitrogen oxide (NOx) emissions by 70 percent (which Sibley calls the equivalent of removing eleven million cars from the roads). But paying for the NOx cleanup will be more bad news for consumers: the bill for retrofitting the power generating plants will be added to the “stranded costs” consumers pay every month. Even so, Smith calls this provision “an enormous victory for the environment.” Less enormous is a “good first step” amendment requiring that utilities generate 3 percent of their capacity from renewable resources (solar, wind, water, geo-thermal) by 2009. These environmental protections passed as amendments to the Senate bill, but they are not currently in the House bill.

The House bill notes that it was not drafted by the Legislative Council (as is customary), and some sources claim industry lobbyists wrote most of the text. Wolens vociferously denies any such allegations as “absolutely and unequivocally untrue. I wrote that bill out myself with Pat Wood, Chairman of the Public Utility Commission. Pat’s an upstanding guy, and David Sibley was there for some of the writing. He saw us…. This bill came entirely out of my head, as a result of travel to Pennsylvania and California [two states that have recently deregulated their utilities] and as a result of all the discussions I had in 1995 and 1996.” As for the bill’s prospects, the big fights are yet to come – in the Wolens-run State Affairs Committee and then on the House floor.

Public Citizen’s Smith considers the House bill better than its Senate counterpart, at least in its current form. “It’s still a shell; it’s only a third of the length of the Senate bill, and the exceptions, loopholes, and give-aways haven’t been put in yet.” It will be the process of integrating those amendments, and then of reconciling them with the Senate’s version, that will provide legislative fireworks and shape the reality of deregulation. Wolens agrees with the assessment that the process could distort his bill beyond its original intent, but he remains optimistic. “I’m confident that we’ll get a renewable resources provision in,” he said, “and we’ve barely begun to discuss low income programs, but I’m not pessimistic.”

Not everyone is so certain. Smith sees the State Affairs Committee as “a four-legged stool.” There are the members who firmly believe in “competition” and will vote for deregulation as an issue of principle. There are the members who represent rural districts and are concerned about the effects of deregulating their local utility co-ops; most of them will likely oppose the bill. The swing votes represent the other two legs: Leo Alvarado and John Longoria, the two representatives from San Antonio (which currently has low rates, and therefore stands to gain the least from deregulation), and the three members Smith defines as “consumer advocates”: Houston Dems Kevin Bailey and Sylvester Turner, and Chairman Wolens. The extent to which the House bill reassures the San Antonians and the members concerned with consumer issues will likely decide the workability of deregulation this session.

Wolens assents to this general sketch of the committee. Asked if he would actually consider voting against his own bill because of disagreeable amendments, Wolens was optimistic but open-minded: “I don’t anticipate having to do that, but it has happened once before in my time here that a bill of mine was amended to the point that I voted against it.”

Even if Wolens’ optimism is justified, and the best aspects of the Senate bill are added to HB 349, consumers aren’t out of the woods. Smith notes three persistent areas of concern:

“The nuclear hangover”: Texans will not get lower rates under pending legislation because the huge hangover of debt (more stranded costs) from nuclear plants will be added to residential utility bills. Remember when Texans were asked to pay more for electricity so that these nuclear plants could be built, plants that would create electricity “too cheap to meter”? Now, with plants that never lived up to that promise (in part because their construction costs ballooned to as much as 1,200 percent above estimates), the utilities want consumers to pay for their losses. Why should individuals bail out super-rich companies that made a bad investment decision? The surcharge for these losses could raise residential bills by as much as 70 percent.Playing monopoly: The utility companies are becoming multinational corporations with horizontal monopolies, which means that you could get electric, gas, cable, telephone, and internet service on one bill. Deregulated, such monopolies could create confusion for consumers and artificially raise prices (the opposite of deregulation’s ostensible goal). In addition, imagine the telemarketing calls you currently receive about long-distance service multiplying to include electric, gas, local telephone, and more.Watching out for the poor: The current bills do not address the concerns of low-income Texans. Utilities could sell pre-paid utility cards at hiked-up prices (like long-distance phone cards), giving them an incentive to deny accounts to those unable to pay the deposit or who have bad credit. Further, there’s no agreement yet on whether or not companies will be allowed to charge more for electricity during peak usage hours and on exceptionally hot (or cold) days.

During Senate floor debate March 17, the latter item was addressed in a floor amendment by Austin Democrat Gonzalo Barrientos. As the Senate pressed through more than fifty floor amendments, Sibley served as the gate-keeper: if he voiced approval, the amendment passed; if he moved to table, the amendment died. (Sibley had already killed Barrientos’ Amendment 35A, which sought to have the “stranded costs” of nuclear facilities paid evenly by residential, commercial, and industrial customers. Presently, industrial customers do not pay nearly as much of these stranded costs as do residential customers and small businesses, and the status quo will continue under the Sibley bill.) Barrientos stood to present Amendment 41, and asked for “some liberal compassion, or at least some of that compassionate conservatism I’ve been hearing about.” Sibley praised the amendment, and it flew through on a voice vote – everyone in the room already knew the outcome, as Lieutenant Governor Rick Perry wryly called for the votes: “All in favor” or “All without compassion.”

The amendment is intended to create the first statewide program for low-income Texans – although more details are not available, because at the moment there is no such plan. The amendment requires the Public Utility Commission to create a suitable plan. But for the moment, there’s no real sense of which concerns the P.U.C. will address, and which it will ignore. (It’s worth noting that the P.U.C. is precisely the regulatory agency that designed the stranded cost distribution so that residential and commercial customers foot the lion’s share of the bill, while industrial customers – the initial advocates of nuclear power – pay lower rates.)

So the Senate passed dereg – with a lone opposition speech coming from Carthage Republican Drew Nixon – and the back-slapping began. Perry praised the Senate for its diligence and commitment and “for working seven and one-half hours today.” (Perry himself joined the debate for the last ten amendments or so, just in time for the evening news cameras.) Sibley thanked everyone in the room individually – even Nixon, whose seemingly endless amendments (all of which failed) Sibley had described bluntly as “not worth a damn.” In closing, he pronounced the bill one which the Senate could be proud of – for balancing industry desires with protection of the environment as well as low-income consumers. “Now,” he said, “it heads to the House, and we’ll all see what happens over there.”