In the 1930s an epic struggle began over regulation of the electrical utility industry. East Coast holding companies had captured the emerging industry, charging exorbitant rates and refusing to extend service to rural farmers and consumers. By the mid-1930s, some 150 holding companies controlled 1400 utilities.

A typical scenario was that of Clark County, Wash. The Northwestern Electric Company leased lines and transformers from Pacific Power and Light Company. American Power and Light Company, based in Chicago, owned all the shares of Northwestern Electric and Pacific Power. American Power and Light was, in turn, wholly owned by Electric Bond and Share Company (now known as EBASCO.)

Former Supreme Court Justice William O. Douglas, then a key advisor to President Franklin Roosevelt, noted, "Through exaggerated fees, the (holding) company saddled the operating companies with enormous charges, which in turn were paid by the consumers of gas and electricity."

Roosevelt barely pushed though Congress the Public Utility Holding Company Act of 1935 in one of the toughest legislative battles of the New Deal. The act closely regulated private utilities and restricted their practices when operating across state lines.

Soon after, the Rural Electrification Administration was formed to provide electrification to rural farmers refused service by private utilities. Massive public works projects such as the Tennessee Valley Authority and the Bonneville Power Administration were built.

In Washington, private utilities bitterly fought the construction of the Grand Coulee Dam in 1934. They also fought the emergence of public power in the form of public utility districts (PUDs), consumer-owned electrical suppliers, that were supported by an unlikely alliance of Grangers and organized labor.

Rabidly anti-Communist State Rep. Albert Canwell and Spokesman Review columnist Ashley Holden (who would subsequently libel and smear State Senator John Goldmark) helped lead the charge against public power. "If you were in favor of public power, the Review and the Washington Water and Power Company considered you the closest thing to a Communist," Tim Egan quoted one Spokane resident in his 1990 book The Good Rain.

Pulling the Plug on Regulation
Against this historical backdrop, Congress and many state legislatures are poised to pull the plug on regulating electrical utilities and once again leave consumers at the mercy of the "free market."

Utilities have long acted as regulated "natural monopolies" because they control generation, long distance transmission and local distribution of power. Now, under the 1992 Energy Policy Act, those services may be divided amongst competing marketers. This could result in the wholesale giveaway of cheap electricity to large industrial users. And once again the small customer may be left sitting in the dark.

Driven by the premise that consumers should be able to select from a range of electrical suppliers, proponents of deregulation argue that service will improve and prices will drop nationwide if customers can select from any electrical provider regardless of location.

Local utilities would be forced to transmit, or "wheel," the power of far-off suppliers, much like a local telephone company acts as a common carrier for long-distance providers.

The drive for national deregulation has been spurred by cheap natural gas prices and new modular turbine generating plants which are cheap to operate and easy to relocate.

"Suddenly, you have a cheaper, and arguably cleaner source of power," said Sara Patton, coalition director of NW Energy Coalition, a Seattle-based energy watchdog group.

"The big users are pushing for deregulation to get their wholesale prices," Patton said.

The basic equity problem with deregulation is that industrial users buy energy on a wholesale basis and can purchase power directly from the supplier. Some industrial users already combine their purchasing power in large loads called "aggregation." Individual consumers, on the other hand, have no purchasing power unless utilities continue to act as "portfolio managers" for all customers. Or, consumers themselves could form effective bargaining units such as "buying cooperatives."

For the moment, however, deregulation will improve rates for wholesale users, but this is unlikely to come to an outlet near you any time soon. Consumers may be stuck with higher cost power from suppliers with expensive "stranded costs," such as the white elephant nuclear plants that have saddled them with debt.

Pushing Power Through the Revolving Door
Nonetheless, deregulation advocates are quick to promote the myth of a retail "consumer" market which, at least in the Northwest, is nowhere in sight.

In a recent editorial in the Seattle PI, Congressman Rick White (R-WA) listed several options presumably available to consumers under energy competition: Run your dryer at night when rates are cheaper, switch companies if your service is poor, and buy "green" electricity from eco-friendly utilities.

"The only way to give consumers these choices - and many others - is to make power companies compete against each other," wrote White, who sits on the House Commerce Committee which is overseeing utility deregulation.

Northwest power rates, however, are the cheapest in the country. In 1996, Washington residents paid five cents per kilowatt hour, whereas New York state residents paid 14.7 cents per kilowatt hour. At these rates, who would stay up in the middle of the night to run their dryer? And switching utilities for better service or selecting "green" electricity perpetuates the industry myth that electrons from Company A may be better than those of Company B. Consumers are unlikely to select the source of their power, only the entity that bills them.

It is hard to believe that White's interest in electric deregulation is limited to his committee assignment. His former law firm, Perkins Coie, represents Puget Sound Energy. Moreover, his former chief of staff, Michael Gallagher, recently left White's congressional office for a position at Perkins on environmental and energy issues. According to public disclosure forms, Perkins Coie recently billed $80,000 to Puget Sound Energy for lobbying efforts on two energy deregulation bills, H.R. 655 and S.B. 1014.

Although prospects for passage this year are dim, the U.S. House and Senate bills attempt to create a national retail market within several years. Both bills would also repeal the Public Utility Holding Company Act (PUHCA), which regulates the activities of 16 utilities that operate across state lines.

One major effect of repealing PUHCA would be to allow for consolidation of the energy business. Already, Texas-based natural gas giant Enron Corp. is flexing its deregulation muscles. It spent between $30 and $40 million in 1997 on "branding" its name and is buying electric companies left and right. A recent report in the Puget Sound Business Journal noted that energy insiders are calling the poorly-performing Puget Sound Energy "Pretty Soon Enron."

According to Patton, some local public utility districts, with cheap hydropower, are also looking forward to deregulation. Seattle City Light already sells wholesale power outside of the state, and is rumored to have a deal in the works to supply Nordstrom with power for its California stores.

Fake Grassroots
But not every utility is in favor of deregulation. In fact, many fat, bloated companies that are "stranded" with out-dated plants or mothballed nukes are fighting it tooth and nail. Corporate opponents of deregulation, which include Commonwealth Edison and Carolina Power & Light, have formed a lobby called Electric Utility Shareholders Alliance.
EUSA bills itself as representing "individual investors holding millions of share of utility company stock," but according to Multinational Monitor the organization is actually a fake "grassroots" campaign run by Washington, D.C. lobbyist Jack Bonner. Bonner's boiler room calls citizen leaders around the country mustering their legitimate concerns about deregulation for his corporate clients. Citizens fax letters back to Bonner's office, where their signatures are scanned onto petitions which are later submitted to Congress.

Environmental Costs
While the corporate position on deregulation may not be uniform, consumer advocates and policy analysts fear that as utilities lose their regulated monopoly status they will forsake conservation, renewable energy, and environmental projects in an increasing drive to boost the bottom line.

"The combination of wholesale markets and special deals to big users means that many utilities are slashing long-term environmental programs," said Sara Patton of NW Energy Coalition.

Patton noted that Bellevue-based Puget Sound Energy (formerly Puget Power) is under pressure to cut long-term costs. Conservation expenses at the private utility have dropped in recent years from $50 million a year to $7.2 million a year.

At the federal Bonneville Power Administration (BPA) conservation efforts, aimed principally at salmon, have been slashed from $200 million per year in 1995 to $15 million a year for the foreseeable future. Utilities were never kind to the environment, particularly the massive public dams on the Columbia. But now efforts to remedy the effects of those projects have been forsaken for cheap power.

In the northeast, energy deregulation may also impact air quality. In January, air quality officials from eight northeastern states wrote to EPA Administrator Carol Browner expressing concerns that northeast air quality may suffer as midwest coal plants increase generation to market power beyond their traditional service territories. Emission from cheap midwestern coal are key source of acid rain as the pollution drifts into the northeast.

Ghosts of Dereg Past
Deregulation of the energy industry represents yet another attempt to leverage the "invisible hand" of free market capitalism. But the results of telecommunication and environmental deregulation efforts have not exactly been promising.

After the breakup of the AT&T long distance telephone monopoly, upstart long distance providers flourished. But it is questionable whether many household consumers have seen their bills drop or their service improve. (Not to mention all those solicitation calls at dinner time.)

The Telecommunications Act of 1996 was supposed to lower cable TV rates, provide high tech video via phone lines, and lower phone bills by opening the $100 billion local phone market to competition. None of those promises have materialized. "On the contrary, these industries are becoming entrenched monopolies, with rates spiraling upward," said Gene Kimmelman of the Consumers Union.

By all indications, the rocky history of deregulation is about to repeat itself with the electric utility industry. A recent search of the World Wide Web revealed numerous get-rich-quick schemes for fly-by-night energy "entrepreneurs."

California's retail electrical scheme began with a disastrous start. Deregulation was set to begin on March 31, but the California Public Utilities Commission failed to screen would-be retail power marketers who sprouted up like door-to-door soap salesmen.

In California, power marketers were merely required to pay a $100 fee to the PUC, which conducted no background checks. "A joke going around [is] that 25 cents and two box tops gets you in," one PUC official told the Los Angeles Times.

One Pennsylvania company, headed by a 19-year old entrepreneur, has been sued by the California attorney general's office for running a pyramid scheme wherein 3,800 "distributors" paid $300 each to become account executives offering retail customers 20 percent savings on their electricity bills.

Sixty years after President Roosevelt stepped in to regulate a huge monopoly for the common good, Congress is on the verge of undoing his work. Nationally, utility holding companies like Enron are once again on the rise. In the Northwest, where a long battle for publicly-held power at-cost was won by consumers, deregulation must not short out attempts to preserve cheap, reliable power and restore fish and environmental resources at the same time.

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Contents this page were published in the March/April, 1998 edition of the Washington Free Press.
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