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Commissioners Split Over Deregulating Electric Power Generation

September 11, 1987

WASHINGTON (AP) _ Federal energy regulators disclosed to Congress a split in their ranks Thursday over whether to encourage deregulation in the business of generating electric power.

Charles Stalon, a member of the Federal Energy Regulatory Commission, told a House panel that justifications for monopolies - while remaining for power transmission and distribution - no longer apply to the generation of electricity.

In testimony before an Energy and Commerce subcommittee, Stalon this was the case in view of high interest rates, frequent recessions, slow decision- making and increased international competitiveness.

Justifications for monopoly have been economies of scale, lower unit costs in large plants, and economies of coordination, greater efficiency through common control of several plants, he said.

″It may well be that we can achieve those economies of scale and economies of coordination ... through a system of markets″ in generation, Stalon told the subcommittee in supporting ideas of the commission chairman, Martha Hesse, to encourage states to stimulate competition among generators.

Markets are developing already between utilities with low-cost extra generating capacity and capacity-short utilities that for one reason or another find it hard to build new generators, Stalon said.

States regulate retail electricity sales, but the commission regulates wholesale and interstate sales. Already some 30 percent of electricity sales comes under commission jurisdiction, compared with only a few percent two decades ago. Much of the 30 percent, however, is interstate transactions between affiliated companies.

Commission member Charles Trabandt protested that Stalon, Hesse and their supporter Michael Naeve were making a festish of untested ″economic theology.″

″We cannot and must not submit to the primacy of economic efficiency,″ said Trabandt, a Republican, in one remark that the subcommittee chairman, Rep. Phil Sharp, D-Ind., said reminded him of comments from the Democratic side of the aisle.

The fifth member of the commission, Anthony Sousa, said it was ″premature for me to express more than cautious optimism that this initiative will produce workable results that are fair to all parties.″

Ms. Hesse is planning proceedings aimed at adopting regulations that would encourage states to make utilities that need new generating capacity put it out to bid, as some states are doing already.

As she and others have outlined their ideas, the bidding would be open to other utilities, regulated small-power producers such as small hydro dams and co-generators using steam in an industrial process, independent unregulated power producers, unregulated industrial generators and even the utility itself under some method to ensure arm’s-length dealing.

Sharp plans a series of hearings on what the commission is doing. He said he was keeping an open mind, and warned that both those who would change a working system and those who would justify monopolies carry a heavy obligation to justify their proposals.

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