Congress focuses on electric utility deregulation.

Legislation could bring significant savings for nonwovens producers.

As the 105th Congress begins to pick and choose items for its legislative agenda over the next two years, electric utility deregulation is emerging as an issue to watch. While it is still unclear whether a bill will be enacted that would bring competition to the last regulated monopoly left in the U.S., a number of Congressional leaders are predicting swift action on the issue. Others, however, warn that it has taken decades to deregulate other monopolies and it may ultimately take just as long to make the electric utilities more competitive.

The nonwovens industry - which is highly dependent on electricity throughout virtually all stages of production - could see steep decreases in utility rates if the deregulation effort is successful. This is especially true for facilities in the Northeastern and Western portions of the country where electricity rates are particularly high. It is for this reason that many industry members are following the issue and are hopeful that legislation will pass within the next two years.

A Tremendous Effort

The $208 billion electric power industry could be the largest industry in the U.S. to face deregulation on a national level. Efforts to deregulate the industry are primarily being driven by free market advocates, large energy consumers and independent power producers. These groups argue that competition will lower prices and increase demand for natural gas and other energy alternatives. On the other side, however, are the electric utilities who are well organized, well funded and politically powerful. The utilities strongly oppose deregulation efforts.

Indeed, the electric power industry has raised the specter of increased air pollution, infringement of states' rights and the potential of an unreliable power supply as the likely outcomes of any federal legislation that would result in greater competition. An elite corps of former members of Congress has been hired to represent the utilities and advertisements that show worried senior citizens and other individual investors struggling to make ends meet are being published on a regular basis in Washington D.C. The utilities claim that there are some six million U.S. citizens who have invested heavily in industry stocks and bonds and that these investments would be threatened by deregulation.

Nevertheless, bills have already been introduced in both the House of Representatives (H.R. 655) and the Senate (S. 237) that would mandate retail competition in the electricity markets by 2003 at the latest and the Clinton Administration is expected to forward its version of deregulation legislation to Congress within the next few weeks. Moreover, Rep. Thomas Bliley (R-VA), chairman of the powerful Commerce Committee in the House of Representatives, has vowed to move a bill through his committee and bring it up for debate on the House Floor by August. That is a very tight time frame considering the scope of the effort and the numerous issues that must still be resolved.

One major issue, for instance, is whether utilities would be able to recoup the costs of capital-intensive investments that they have made in the past - such as nuclear power plants - that would not be competitive in the free market environment. 'In California, one of eight states that has already adopted some form of deregulation, the utilities won the right to continue charging ratepayers for these investments - an issue that helped guarantee passage of the measure and will allow nuclear power plants in the state to continue operating for at least five more years at subsidized rates.

If the California approach was adopted on a nationwide level, it is estimated that the electric utilities could recover nearly $135 billion in unprofitable investments.

Critics of the California plan, and several members of Congress, argue that the national adoption of such a provision would actually be a federal "bail out" for the utilities, similar to that which the savings and loan industry received in the 1980's and would help ensure high energy prices for years to come. But other members of Congress, especially Frank Murkowski (R-AK), chairman of the Senate Energy and National Resources Committee, have stated that such a provision must be included in any federal legislation if it is going to have a realistic chance of being enacted. Without such a provision, according to Senator Murkowski, the utilities would face bankruptcy.

State Models

In addition to California, seven other states (Arizona, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont) have either adopted some form of deregulation or are on the verge of completing action on the issue. California, Pennsylvania and Rhode Island are the only states, however, that have fully implemented a statewide plan. Many other states are also considering deregulation bills in their legislatures.

It is this state-by-state approach to deregulation, in fact, that is forcing the U.S. Congress to consider the issue on the national level. As Senator Dale Bumpers (D-AK), the ranking minority member of the Senate Energy and National Resources Committee, recently noted during a Congressional hearing, "To allow states to (deregulate) on a harum-scarum basis according to their own rules is going to be chaotic not just for the nation, but for the utilities themselves."

Senator Bumpers observation can be seen in the different approaches that have been taken by those states that have already addressed the issue. In Massachusetts and New Hampshire, for instance, utilities will be forced to either absorb a large share of their unprofitable investments or leave the industry altogether. Similarly, in New York, several utilities have filed suit to stop state efforts that would prevent them from recovering their "stranded costs" on the grounds that those investments were originally made with the permission of state regulators.

Several states have also adopted provisions that will require renewable resources of energy to play a big part in future electrical needs and at least two (Pennsylvania and Rhode Island) have developed plans that may actually be more generous to utilities in allowing them to recover bad investments than that which was put into place by California.

With national legislation, energy users will likely lobby for a model that is closer to that which was adopted by Massachusetts and energy producers (if forced to endorse any deregulation plan) will likely support one that is closer to that developed by either California or Pennsylvania.

Next Steps

While the issue is likely to receive considerable attention during the 105th Congress, there is no certainty at this point that any of the bills that have been introduced to date will eventually become law. There is also the very real possibility that Congress may determine that the issue is too complex to be addressed in a single legislative effort and that an incremental approach should be taken instead.

To this end, Rep. Cliff Stearns (R-FL) has introduced a bill (H.S. 338) that, he claims, would loosen federal regulations and help drive down electricity costs by repealing the Public Utility Regulatory Policies Act of 1978. This law requires that utilities purchase power from independent operators who generate electricity from alternative sources of energy. According to published reports, this approach could be taken as a "first step" to broader federal action.

INDA will continue monitoring this issue and communicating the interests of the nonwovens industry to Congressional decision makers. Given the tight profit margins under which most of its members operate, INDA supports efforts that will lower production costs whenever possible and believes that electric industry deregulation could result in significant savings for its member companies.

Peter Mayberry is the director of government affairs for INDA, Association of the Nonwoven Fabrics Industry. He works out of the law offices of Kutac Rock in Washington D.C. This Capital Comments column appears monthly in NONWOVENS INDUSTRY.