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Preemption watch.

Two important bills that potentially intrude on state authority have been introduced in the 105th Congress to require deregulation and retail competition for electric utilities. Representative Dan Schaefer of Colorado has introduced HR 655, essentially a duplicate of his HR 3790 introduced last session. Senator Dale Bumpers of Arkansas, ranking Democrat on the Senate Energy and Natural Resources Committee, has introduced S 237, which also would deregulate the electric utility industry and preempt state law to mandate retail competition (while retaining a role for states in regulating and supervising competition). Representative Tom DeLay, the House Republican whip, is expected to introduce a third bill in early March.

The Schaefer bill would require open competition in the retail electricity market by Dec. 15, 2000. Bumpers would deregulate the retail market by December 2003. Both would allow the states a measure of discretion in implementing the federal law, but states still would be required to open retail markets and to meet minimum federal standards. This could lead to the feds dictating a variety of issues, such as recovery of stranded costs, renewable energy initiatives and consumer protection.

NCSL's message to Congress is that federal preemption of state law in this area is premature and unwarranted. Congress should limit its involvement to removing federal statutory impediments to state deregulation efforts. State legislatures and state utility commissions traditionally have regulated the retail electricity market and in doing so have not unnecessarily burdened interstate commerce.

To the contrary, states have led the way with experiments in retail competition. New Hampshire, for example, has already launched a pilot program in retail competition and will open the market to competition on a statewide basis by next January. California and Pennsylvania will open their retail utility markets to competition in 1998, Rhode Island by 2001. Arizona plans to deregulate its retail market by Jan. 1, 2002. Illinois will run two pilot programs in local retail competition. And most state legislatures and public utility commissions have proposals for competition in the retail electricity market under active consideration.

NCSL argues that congressional action would disrupt carefully crafted state experiments with retail competition. Electric utility deregulation is not a simple matter. The road from regulated monopolies to market driven competition is always an uncertain course. It is too early to say whether consumers will always see lower utility costs, or, more important, to assess which consumers, industrial or residential, urban or rural, will benefit. It is imperative that states stay in the driver's seat, so that midcourse adjustments can be made.

The structure of the industry also varies greatly from state to state. Those that have moved quickly to deregulate have been plagued with high utility rates, caused in New Hampshire's case, for example, by heavy reliance on high cost nuclear power plants. A state like Idaho, on the other hand, with its hydropower and low-cost coal, currently has low rates and has so far rejected retail deregulation. It simply cannot be assumed that states will benefit from a one-size-fits-all model for electric utility deregulation that has been designed in Washington, D.C.

Another reason for concern is that the electric utility bills are only the latest in a wave of bills and recent enactments that would override state regulatory authority. The 105th Congress is actively considering bills that would preempt the authority of state legislatures over product liability and over "multiple employer welfare associations" in the health insurance arena. And Congress already has acted in recent years to substantially take away state jurisdiction over many elements of trucking, credit reporting, telecommunications and banking policy.

So where does it stop? What authority will state legislatures have 20 years from now if Congress continues to preempt at this pace?
COPYRIGHT 1997 National Conference of State Legislatures
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Title Annotation:deregulation and retail competition for electric utilities
Publication:State Legislatures
Date:Apr 1, 1997
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