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Regulatory Failures JIM BOYLE SAYS he got a telephone call on November 5, the day after the election, from a stockbroker who was talking up Gulf States Utilities. The broker advised buying GSU stock on the grounds that the utility would be getting a large rate increase in coming months and that their stock would increase by 50 percent in value. To someone who has spent most of the last decade fighting utility rate hikes, this was unwelcome news, at best. And though Boyle expects to be working again to stop a rate increase for Gulf States, he thinks this time the utility may have cause to be optimistic. For one thing, the election of Bill Clements as governor may improve the “regulatory climate” from the utilities’ point of view. For another, Gulf States is launching an expensive public relations blitz to build support for their requested $144 million hike. Boyle is stepping down after threeand-a-half years as director of the Office of Public Utility Counsel Mark White to represent residential and small business ratepayers in front of the Public Utility Commission. He is entertaining offers by several ratepayer groups to continue working on utility issues as a citizen activist. Shortly before his November 28 departure from the OPC, Boyle met with the Observer and discussed the past and future of utility regulation in Texas. The ,upcoming GSU battle is exhibit one in a generally bleak case that Boyle lays out. In the next two to four years, 80 percent of Texas ratepayers may be facing utility hikes, Boyle predicts, causing anywhere from 20 to 100 percent higher bills. Adding to that is uncertainty about the imminent appointments of Bill Clements to the three-person PUC \(one commissioner’s term expires in September of 1987 and and, as well, uncertainty about the very survival of the Office of Public Counsel, which Clements has suggested in the past is unnecessary. Clements may team up with the utility lobby, which was gunning for the OPC in this summer’s special session, to urge the legislature to eliminate the budget for the agency. think it’s going to be very difficult to maintain it,” Boyle says, but he doesn’t think the OPC will go down quietly. “I’ve been surprised by the number of businesses and individuals who have called to say ‘what can we do to preserve it?’ Gov. Mark White credited Boyle’s office with helping to save consumers $1 billion in utility bills since the beginning of 1985. The OPC successfully argued for an $80 million rollback in the rates of Gulf States Utilities earlier this year, and Gulf States customers saw the rates drop from over $100 for 1,000 megawatt hours in 1985 to $68 this summer. Upon Boyle’s resignation, the Austin American-Statesman said he has been hailed as “a local hero” in parts of Texas for his work. The office has had to endure a budget cut from $657,000 in 1983 to the current level of $614,000, which, Boyle notes, compares to several million dollars spent by a utility company in preparing and arguing a single rate case. Boyle utility company and get everything they’re entitled to but not a penny more,” Wright said. -Everybody has to tighten their belts.” The PUC officially slashed the rates in June after an out-of-court settlement was agreed to by the company and the Southeast Texas cities. “Sometimes government entities do not respond well until people are hurting badly,” Boyle says. “You shouldn’t need a ratepayer revolt to make the regulators wake up. There is no question that the regulatory process failed in properly evaluating the expenditures of, GSU.” GULF STATES has excess capacity but it isn’t the only one. Central Power & Lighting capacity after the South Texas Nuclear. Project is complete; Houston Lighting over-capacity with the South Texas have 70 percent over-capacity with all three Palo Verde plants in operation, Boyle says. \(Texas Utilities will not have a significant over-capacity after But all this will have to be paid for. EPEC may come in with a rate increase request in January; CP&L will be in for a raise in early January; and HL&P just got one and will be back next year, Boyle says. This over-capacity problem is exacerbated in. GSU’s case by a sharp decline in load, especially from industries. As the rates go up, more industries are driven off-line by either going to cogeneration or simply moving locations. North Star Steel, Inc., intervened to oppose the last three rate increase requests and will oppose the next one because the cost of electricity is its second biggest cost, said North Star attorney Fred Ritts. “The steel industry is a very competitive marketplace and we have to hold down our costs, Ritts said. “The rates are pretty competitive now” in comparison with other heavy industrial states. “Many of them [industries] would go off-line and shift facilities to other states or build cogeneration” if the price goes up significantly, he said. GSU’s industrial sales in Louisiana in 1985 were 8.1 million megawatt-hours. and the company projects industrial sales dropping 31 percent, Ritts said. In Texas industrial sales fell 10 percent in two years, he said. GSU has a number of incentive rates that allow industries to remain competitive, said GSU spokesman Kim McMurray. Their industrial rates are competitive with other areas because GSU does not want to lose any customers, he said. But that is part of the vise that GSU is caught in. To keep industries in their system, GS -U must offer them lower rates. But if they do that, the burden of paying the fixed cost of River Bend falls harder on the people who can least afford to pay high utility bills: residents and small businesses. Boyle calls this general pattern a “death spiral” of higher costs forcing down demand, which in turn forces costs up again. Boyle, who was appointed by Gov. Mark White and resigned his position on November 28, points out some inherent problems with utility regulation in Texas. The model that the PUC uses to regulate utilities is antiquated and dates back to the 1930s, when electric and telephone costs were cheap compared to people’s income, Boyle said. Utility officials would sit down with government officials and explain why they needed a rate increase, which was almost always granted, he said. After the oil embargo in the 1970s and the cost of electricity started to become significant, the larger industries started to oppose rate increases. It wasn’t until 1983, when the Office of Public Counsel was established, that the residential and small consumers were represented in the state hearings. 14 JANUARY 9,