Rules 'patchwork' impedes restructuring

DALLAS, Texas, Nov. 29, 2000--Deregulated natural gas and electricity markets also need liberalized business rules if competition is to flourish, several former U.S. government officials said Wednesday.

They spoke at the North American Summit on Harmonizing Business Practices, sponsored by the U.S. Energy Department and the National Association of Regulatory Utility Commissioners (NARUC).

The meeting's goal was to find ways to promote competition as natural gas and electricity markets are restructured.

Speakers said the differences among network companies�gas and electric distribution firms, pipelines, electric transmission companies, and independent system operators�have become barriers to the development of mature and competitive markets.

Robert Gee, former assistant U.S. Energy Secretary for fossil energy, said in the gas sector, restructuring has occurred primarily in the wholesale markets, because the Federal Energy Regulatory Commission has oversight over all interstate gas pipelines.

Gee said although gas decontrol was complicated, it lacked the jurisdictional and other physical and engineering issues vexing the restructuring of the electricity sector. "Moreover, while natural gas retail regulatory reform has been slowly emerging, its adoption this far has occurred only on a limited geographic and state basis.

"By contrast, electric industry restructuring has been, and continues to be, more complex, owing to the long history of jurisdictional division of authority between state, federal, and local authorities."

He said there are myriad differences between the types of utilities (investor-owned, cooperatives, municipalities, and power authorities) and they often have unique physical and engineering configurations.

Gee said those complexities have been compounded by the state-by-state control of electricity. "What we have now, for better or worse, is an emerging patchwork of different blueprints for introducing retail competition.

"The necessary rules and procedures for electric retail competition are becoming embodied in state regulatory commission rules, individual retail access tariffs, and/or operating agreements and contracts. However, as states have begun introducing restructuring at the retail level, business rules have been varying significantly from state to state."

He argued that a lack of uniformity has the potential to be a significant impediment to the profitable market entry and operation of competitive energy service providers on a regional or national basis.

"The diversity in rules and procedures for providing essentially the same service in different areas may increase the costs to consumers and decrease the profits of some competitive providers.

"Absent harmonious rules an standards, truly competitive gas and electricity markets could be stunted. Uniform standards, on the other hand, hold the potential of lowering the cost for all market participants, lowering barriers to market entry, and easing the movement of capital, goods, and services. Buyers and sellers wold then have more choices and better opportunities to recognize the value of a competitive market," Gee said.

He also said any potential standards also should be drafted to include transboundary transactions, in recognition of the growing North American energy market.

Energy policy
Branko Terzic, director of public utility services for the Deloitte & Touche consulting firm, said state-by-state regulations have resulted in a diversity of business rules.

Terzic, a former U.S. Federal Energy Regulatory Commission member, said: "We have a patchwork of government rules, and it doesn't have a national vision."

In contrast, he said the European Commission�representing a variety of nations�has established electricity and natural gas directives with goals and deadlines. The overall objective in Europe is economic efficiency of energy markets.

Terzic noted that in the U.S., there is not even a national policy that declares the production of electricity should be cost-competitive. "We can talk about the needs for voluntary business practices, but we need to agree on national energy goals first."

He said the old Federal Power Act has a neglected provision that would allow FERC to convene a board to harmonize U.S. electricity practices, and the commission should consider activating it.

Tom Casden, chairman and CEO of Americas Power Partners, said the most efficient segment of the electricity generating market is distributed generation. But he said most state regulatory commissions were established to regulate large central generating plants, and their rules act as a barrier to the more efficient smaller plants. "Talk about a crazy quilt. There is no logic to it."

Casden said the only goal of government energy policy should be to drive the costs of generating power and the resulting pollution as close to zero as possible.

Gary Nakarado, of the National Renewable Energy Laboratory, discussed a recent study by the lab.

It found that the electricity industry needed uniform technical standards for interconnection to the grid. After the technical issues are resolved, he said governments should review their rules to ensure they are fair to potential market entrants.

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