The Pew Charitable Trusts

Proponents of electric utility deregulation will look back fondly on 1999, a year that saw the policy spread to nine more states and bump the total up to 23.

That surprised power experts, who predicted little growth for deregulation in 1999 because states with the most expensive electricity had already adopted the policy before the year started.

In fact, some states with moderately priced electricity, such as Maryland and Texas, hopped on the bandwagon in the 20th century's final year.

As detailed below, cost wasn't always the primary consideration as Maryland and Texas joined Arkansas, Delaware, New Jersey, New Mexico, Ohio, Oregon, and Virginia in committing to deregulation, also known as electric utility restructuring.

The converts joined a club that already included Arizona, California, Connecticut, Illinois, Massachusetts, New Hampshire, Nevada, New York, Maine, Michigan, Montana, Oklahoma, Pennsylvania and Rhode Island.

As Joan Walsh Cassedy, the associate editor of The Energy Daily observed: "I don't think there's any putting the genie back in the bottle at this point."

In a few states, the prevailing sentiment is that the genie needn't emerge any further. Not surprisingly, those states have low electricity costs and don't believe deregulation is worth the upheaval and effort that invariably accompany its initial stages.

Alabama, for example, likes to cite a study conducted by the University of Alabama and Auburn University, indicating that electricity prices could actually increase 6 percent under deregulation.

If the policy ever comes to Nebraska, it won't be at the behest of Gov. Mike Johanns. Armed with a U.S. Department of Agriculture study indicating deregulation would bring lower cost electricity to 26 states, but might lead to higher bills in 19 states - including Nebraska - in May Johanns traveled to Washington, D.C.

He spoke critically of electric utility deregulation while addressing the House Agriculture Committee's General Farm Commodities, Resource Conservation and Credit Subcommittee's hearing on the effects of electric industry restructuring on rural America.

"Several of the states with low electricity costs continue to ask: `What's in it for us?'" Johanns told the congressional panel. "Experiences with deregulation - including airlines, telecommunications industries and railroads - certainly provide justification for skepticism.

"The federal government cannot create one restructuring model and expect all 50 states to follow it," Johanns added. "Every state has unique characteristics that will make a federal model unworkable, unfair and costly to consumers."

Colorado is another state in no rush to break up its electric utility monopolies. Last summer, Gov. Bill Owens told stateline.org "we have a 30-month study that we're in the middle of. I'm going to wait until the study is over, as will the Legislature, before we do anything about it."

Key lawmakers in Indiana have informed the state's five major electric companies that deregulation won't be considered by the 2000 Indiana General Assembly.

The politicians told the Indianapolis Star that the two-month session in 2000 doesn't provide sufficient time to study deregulation, and noted that Indiana's electricity costs are already comparatively low.

Louisiana's top utility regulator also came out against restructuring in 1999, saying it could lead to higher electricity costs for state consumers. Louisiana is taking a go-slow approach, opting to study all the issues associated with deregulation through August 2000.

On the federal front, Rep. Joe Barton, (R-Tex) and Sen. Frank Murkowski, (R-Alaska), tried and failed to push deregulation legislation in 1999. They appear likely to try again in 2000, although Johanns and several other governors have made it clear they would prefer for the federal government to butt out.

"If the states can do it, we can do it and we can build on what the states do and we can defer as much as possible to the states," Barton says. "But you can't have interstate commerce in the lower 48 without federal action in some way."

Reasons Why States Deregulated In 1999

A number of factors prompted states to deregulate in 1999, in addition to the objective of lowering energy costs for residents.

"The complexion of the issue has changed, as we have moved from the states with the most expensive electricity to the middle-cost states," says Matthew Brown, an energy expert with the National Conference of State Legislatures in Denver. "So there's a different dynamic, there are different reasons for going ahead."

For one thing, business lobbyists put a full-court press on statehouses in 1999, imploring lawmakers to opt for deregulation. Power costs are a significant operating expense for businesses, and deregulation has consistently delivered bigger electricity discounts to large companies than to average consumers.

Regional considerations also came into play. Maryland may have medium-priced electricity, but didn't want to be surrounded by Pennsylvania, Delaware and Virginia, which all have deregulation.

Had Maryland opted to be an island of electric utility regulation, it would have put the Free State at a competitive disadvantage when competing for businesses relocating in the mid-Atlantic region.

Pennsylvania A Shining Star

In the handful of states that have actually implemented electric utility deregulation, consumer advocates have been largely unimpressed with the policy's ability to attract average consumers, or lower their electricity costs.

The exception has been in Pennsylvania, where 450,000 of the state's 5.3 residential electricity providers have switched. Those 450,000 residential customers were three times more than switched in California, a state with a population of 32 million.

The Keystone State's deregulation model is successful because its structure allows homeowners to reap significant discounts, yet also makes it financially attractive for outside power companies to challenge existing Pennsylvania utilities.

Pennsylvania's success at wooing residential customers contradicts deregulation critics who complain the policy only benefits medium- to large-size businesses. Opponents -- primarily consumer advocates -- point to Rhode Island, California and Massachusetts, the only states aside from Pennsylvania that started 1999 with deregulation in place.

New Jersey and Illinois kicked off their programs in 1999.

Power companies entering Rhode Island, California and Massachusetts to do battle with incumbent utilities, have consistently targeted large corporations and ignored households and mom and pop businesses, consumer advocates complain.

That's because power companies want big businesses that use plenty of power, rather than individual households that use minuscule amounts of power and can be located in hard-to-service rural areas.

That pattern hasn't been quite as pronounced in Pennsylvania, as noted above.

Texas and New Jersey, which passed deregulation bills in 1999, each modeled parts of their programs after Pennsylvania's.

Green Power

As electric utility deregulation spreads nationwide, there's been a corollary rise in the use of `green power,' the term for electricity generated from renewable sources such as wind, water and solar energy.

As states have adopted deregulation, they've "offered customers the option of buying renewable product," says Gary Foster, a spokesman for Enron Inc., a $38-billion, Houston-based energy company.

In 1999, green power flourished in California and Pennsylvania, states where deregulation has given consumers a choice of doing business with green-power companies. These power providers typically charge slightly more than firms using fossil fuels and nuclear energy to generate electricity.

This was reflected by the financial performance of the U.S. wind industry. It closed out its best fiscal year ever in June 1999, having installed more than $1 billion worth of new equipment, with a generating capacity of 1,073 megawatts, according to the American Wind Energy Association.

In Texas, part of the deregulation law it passed in 1999 calls for the addition of 2,880 megawatts of renewable energy by 2009, which would be about three percent of the state's electrical output.