Electric utilities across the country are preparing for deregulation, regardless of some states' slow movement toward an open market, according to Glenn Sheeren, founder of Californians for Competitive Electricity.
And if companies get too far ahead of regulators, he said, it could lead to a "train wreck" of confusion and bad energy policies within a few years.Sheeren, corporate manager of energy and government relations for Inland Paper and Packaging Inc. of Indiana, spoke to about 100 utility representatives and big power users during Thursday's Western States Energy Conference in Salt Lake City.
He said Utah and other states that are creeping toward deregulation can learn from California's restructuring process, which resulted in the start of limited competition earlier this month.
That state's politicians and energy users were pushed toward deregulation because they faced some of the highest electricity rates in the nation, he said.
"We were in the worst shape, so being first was OK . . ." Sheeren said. "The debate in other states is very different from the debate we engaged in in California."
Even though Utah's electricity rates are among the lowest in the nation, Sheeren said it would benefit from competition.
Under the current system, investor-owned utilities operate as monopolies under strict state regulation. The companies earn profits based on the amount of investment on their balance sheets, he said, so they are encouraged to expand their systems.
But Sheeren, who was elected in 1997 to serve on the first governing board for California's electric Independent System Operator, said the old system gives no incentives for utilities to control costs or improve service.
"We've encouraged (utilities) to build and build and build . . .," he said. "I don't think the traffic cop role we've put regulators in has served us well."
Sheeren said regulators now assume utilities are running efficiently unless proved otherwise. Players in a competitive market would have to be more accountable than they are under such a "catch-me-if-you-can" standard, he said.
Still, Sheeren said, states are moving toward deregulation at three different speeds.
California and some East Coast states have faced high power rates in the past, he said, so they placed restructuring efforts on a fast track.
A second group includes more than 20 slower-moving states that do not want to be left behind but also do not want to do anything foolish, Sheeren said. The third tier is made up of states that fear deregulation and have a definite wait-and-see attitude.
He said the problem is that utilities and power marketers are not waiting to complete the mergers and strategic investments that will help them compete. And when the companies reach a point of no return, states that are dragging their feet now may be forced into some hasty deregulation decisions.
"People are making investments in markets that aren't open yet," Sheeren said. "I think the ball is rolling, and it's moving commercially. . . . From my perspective, the dollars are driving this issue now, and it's not even on the radar screen of public policy people."
Even if states do not feel a need to move ahead because of rate pressure, he said, they may want to deregulate before the federal government steps in. Several electricity restructuring bills are pending in Congress, Sheeren said, and most call for nationwide deregulation early in the next century.
To keep local control, he said, most states probably will finish debating the issue and start the transition toward competition by 2003.
"(Federal legislation) will set up the incentive for local folks to look more closely at moving forward," Sheeren said. "That's another train wreck that's coming."