Q: What's the best way to deregulate providers of electric power?

0 Comments | Insight on the News, May 12, 1997 | by Steven Merrill, | Dan Schaefer, | Jerry Taylor

Consumer choice and market competition are prized American values. Today, through scores of state-based reforms, the benefits of market competition are being extended to millions of electricity consumers. In just the last year, my home state of New Hampshire, along with Pennsylvania, Rhode Island and California, has initiated reform without federal encouragement or mandates. Many other states soon will follow our lead. For American conservatives and, more importantly, American families and businesses, this is the best of all possible developments. Competition flourishes and consumer choice is expanded without the heavy-handed intrusions of the federal government.

But not everyone shares this view -- and there is a storm brewing in Washington. Concerned that a Washington-knows-best, business-as-usual approach to deregulation might be adopted by Congress, conservatives like me have begun to advocate swift and uncompromised reform of America's electric-utility industry -- at the state level! We firmly believe that, through state-based reform, very tangible benefits will flow to the American consumer and the entire economy.

Unfortunately, the proposals introduced in Congress are troublesome. In the name of spurring competition in electricity markets, these proposals trample on the rights of the states to pursue their own visions of reform, which are better tailored to their individual economies and consumers. Of even greater concern, the current congressional proposals completely sidestep the numerous problems associated with government-owned and government-subsidized power, which accounts for one-quarter of the nation's electricity supply. Finally, some of these proposals would create a federally mandated market share for noncompetitive renewable energy sources.

This hardly is what most Americans expected from the 105th Congress. Current congressional proposals are zealous where they should be modest and timid where they should be bold. Modesty would recommend that Congress generally yield to the states in the content and pace of bringing competition to the retail marketplace. Boldness would recommend that Congress examine those policies and programs which Congress itself created -- the Tennessee Valley Authority, or TVA, for instance. If there were any justification for federal legislative action, it certainly should begin by focusing on government-owned and government-subsidized power Congress authorized and only Congress can reform. There are a number of powerful interests at work in this debate that want to enhance the ability of low-cost power producers to sell electricity nationwide to retail customers by creating a uniform set of rules. This would require federal mandates that would pre-empt long-standing state prerogatives.

At a superficial level, this might seem to be reasonable. After all, wouldn't a uniform national market with one set of rules seem to make more sense than a patchwork of local marketplaces? The answer, ultimately, is no. Conservatives always have resisted the unnecessary expansion of federal authority. The expansion of federal regulatory powers "to the toaster" in every home in America should be no exception. By preempting state demonopolization initiatives, Congress inadvertently would assure a vast and momentous expansion of federal regulation and federal regulators.

Deregulation should be left to the states; Washington does not know best. The statehouses should serve as the powerhouses of innovation. Moreover, there absolutely is no federal statute or other federal impediment that prevents any state from bringing the benefits of retail competition to its citizens. None! If a state deems it in its interest, it can and should move forward immediately. In short, it hasn't taken an act of Congress for competition and consumer choice to flourish when it comes to electricity. It's already under way.

The Rural Utilities Services, or RUS -- an agency most Americans probably never heard of -- is negotiating away billions of dollars owed to the federal government by a number of arguably bankrupt rural electric cooperatives. To date, $1.5 billion of American taxpayer money has been lost -- and the eventual loss to taxpayers could exceed $11 billion.

Late last year, the RUS negotiated a $982 million bailout for the Soyland Power Cooperative, which serves 160,000 customers in southern Illinois. The bailout represents a cost of $6,137.50 per customer!

In all, a dozen rural electric cooperatives are in serious financial trouble and are very likely to seek a federal bailout at enormous expense to taxpayers. The Wall Street Journal has reported that, of the more than $50 billion in loans to rural electric cooperatives guaranteed by the federal government, "$11 billion are in default or classified as problematic."

What makes this more troubling is that taxpayers, who already have been subsidizing these cooperatives directly and indirectly, are paying again. Instead of a federal mandate on competition that already exists, the federal government should get cooperatives off the subsidy programs and into the free marketplace as quickly as possible.