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Utilities


Industry Outlook 1999 -- SERVICES

Utilities

Since 1995, utility bosses have either fretted or fantasized about the opportunities that would flow from deregulating the $210 billion market for electricity. Efficient utilities with lower rates could grow rapidly by winning business from sloppy rivals, since consumers could pick from a menu of producers. The revolution was to kick off with California's $23 billion electricity market, then spread to other states.

It hasn't worked that way. California's carefully orchestrated initiative includes built-in rules and safeguards to help existing utilities recover their investments. The barriers proved so high that potential rivals have shunned California.

Now, there's a new wrinkle. For the first time, U.S. utilities are in the sights of foreign rivals. In December, Ian Robinson, chief executive of Scottish Power PLC, bid $7.9 billion for PacifiCorp in Portland, Ore. A week later, National Grid Group PLC, a power distributor in England and Wales, offered $3.2 billion for New England Electric System, the Westborough (Mass.) parent of four utilities. Both British companies say they may make more acquisitions, and Robinson predicts that within 12 months, "there are going to be a handful of other [foreign] power companies in the U.S."

For utility execs, the first concern is finding effective recipes for states making the transition to a competitive market. With Illinois, New York, and other states pushing ahead with deregulation, the utilities hope to avoid repeats of the California situation and foster environments that don't prevent newcomers from setting realistic prices. The industry is also lobbying Congress to change the Public Utility Holding Co. Act of 1935, which has killed several proposed mergers between utilities in neighboring states.

But there are issues beyond deregulation as well. The Environmental Protection Agency wants tougher controls on power-plant emissions. And some states are pushing the environmental button, too--requiring monthly bills that tell consumers in detail how much of their power comes from nuclear, coal-fired, or gas-powered generators. Environmentalists hope that, armed with this knowledge, consumers will select the companies that pollute the least.

There are also some nuts-and-bolts matters to clear up. The Federal Energy Regulatory Commission is still trying to figure out how to set up a system for efficiently transporting electricity across the U.S. power grid. Managing this supergrid may require a new authority--the need for which was highlighted last July, when territorial disputes blocked the delivery of power bought by utilities in the Midwest from power plants in Georgia and New England.

Nobody expects government and the industry to work out such problems overnight. That means a truly competitive, deregulated market for electricity will remain a distant goal in 1999.By De'Ann Weimer in ChicagoReturn to top

TABLE

Positives and Negatives

POSITIVES

-- Independent system operators that act like air-traffic controllers on the national energy grid are coming into their own

-- Some utilities are positioning themselves as multi-energy distributorsNEGATIVES

-- Bad publicity during the June/July energy crisis has Congress taking a look at reregulation

-- Some states have made it difficult for outside utilities to grab a significant customer baseReturn to top


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