Increased competition may spur construction of new electricity-generating operations and create new jobs, but it may also put small utility companies at a disadvantage in a larger market. Furthermore, some argue that increased competition will force electric utilities to focus on short-term projects and neglect longer-term research and development projects.

Last April the Federal Energy Regulatory Commission, which is responsible for monitoring interstate electricity transmission, issued an order forcing public utilities to open their transmission lines to any electricity-generating company willing to pay a fair transmission cost. This prompted almost every state to study retail competition in their electricity markets. As expected, that local action attracted the attention of Capitol Hill and the White House.

Several electric-utility deregulation bills were introduced in the last Congress, and the U.S. Department of Energy (DOE) is apparently preparing energy restructuring initiatives. Generally, the House Republican leadership supports deregulation, while the Senate, led by Frank Murkowski (R-Alaska), chair of the Energy and Natural Resources Committee, has shown little enthusiasm for reform.

At stake is $208 billion in electricity generation, transmission, and marketing. One study predicts that retail electric-power competition would spark a $107 billion cut in consumers' annual electric bills, provide up to 3 million new jobs, and produce a 2.6-percent increase ($191 billion) to the nation's gross domestic product.

The expected debate in Congress, however, follows regional--not partisan--lines. Those Western states with cheap hydropower oppose deregulation, while California and Northeastern consumers seek relief from high electricity bills. Midwesterners favor new life for obsolete coal-fired power plants, and Northeast residents want protection from the coal-generated pollution they say will drift over their cities. Representatives with nuclear power plants in their districts might try to compensate utilities for their investments in those plants, which are likely to be unprofitable in a deregulated market.

Industrial electricity users, more than homeowners, would probably realize savings from deregulation. One study predicts that increased competition would reduce electricity bills by as much as 43 percent, dramatically cutting costs for energy-intensive industries such as automobile manufacturing. If electricity is cheaper, residential consumers are not expected to increase their use, but industrial users--who make up 34 percent of the retail market--might.

At the heart of the deregulation controversy is the sticky issue of federalism: Should the federal government mandate nationwide electricity competition, leading residents in states where energy is less expensive to pay more? Federal oversight to govern competitive interstate electricity transmission and monitor pricing will be necessary. The DOE does not want a mandate on states to open their markets to competition, but House Republicans are pushing for one. A bill introduced by Rep. Dan Schaefer (R-Colo.), chair of the Commerce Committee's Subcommittee on Energy and Power, would give the states until December 2000 to implement retail competition.

Opponents of deregulation also cite environmental concerns. The first is whether cheaper energy will spur greater consumption, increasing output at coal production plants. A study by Resources for the Future predicts an increase in annual emissions of 349,000 tons of nitrogen oxide and 113.5 million tons of carbon dioxide by 2000. Rep. Frank Pallone Jr. (D-N.J.) introduced a bill last year that would bring old coal-fired plants under tighter federal air-quality standards.

Another concern is how increased competition would affect the fate of renewable energy. Wind, solar, and geothermal power can be more capital-intensive in the short term than coal or gas and may be threatened in a deregulated market. Schaefer's bill would require all electric-power generators to maintain "renewable-energy credits" equal to 2 percent of their generation, increasing to 4 percent by 2010.

A related fear is that energy companies will no longer invest in long-term R&D activities. In fact, the industry may already be preparing for deregulation by cutting costs wherever possible, including R&D. A report by the General Accounting Office indicated that from 1993 to 1996, electric utilities reduced their R&D spending about 33 percent, to $476 million.

Supporters of deregulating the electric-utility industry, some of whom predicted relatively easy passage of a bill last year, hope to get one through in 1997. Others do not expect any movement until 1998, they say, because there does not seem to be a groundswell of support to fix a system that some do not consider to be broken.

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