SACRAMENTO — Electricity deregulation could be “dead in the water” for a few years due to bad publicity from Enron’s bankruptcy, an energy market researcher said Tuesday.
“For basically political reasons, no one is going to be pushing deregulation,” said Michael Reid, who follows the energy market for Platts, the energy market information division of The McGraw-Hill Companies.
Enron, an energy marketer and trader, led the charge for deregulation of energy market, Reid said. “They were the biggest and the baddest. They were the company to beat.”
The energy giant’s recent collapse is under investigation by several congressional committees, the Justice Department and the Securities and Exchange Commission. California’s Legislature and the state’s attorney general have subpoenaed Enron documents in their investigations into possible price manipulation in the state’s energy market last year.
Texas, which opened its energy market to competition this month, shows that deregulated markets can work, Reid said. Enron was expected to be a big player in that market, and despite its bankruptcy, their customers are being served.
“It appears that the Texas market is working as planned,” he said.
Still, he said, that probably won’t “carry much weight in the capitols of states that haven’t committed to deregulation.”
California approved deregulation in 1996, but capped the rates retail customers would pay.
When wholesale rates soared far above what customers paid, three utilities amassed billions of dollars in debts. The state had to step up to buy electricity when the utilities’ credit ratings were downgraded last January.
Since that time, the state has moved further away from deregulation, even creating a state power authority that can build, buy or lease power plants to ensure that California has sufficient electricity supplies.
Between Enron’s collapse and California’s failed attempt to deregulate, Reid said he doesn’t see any lawmakers willing to promote market restructuring. “They’ll be steering clear of this topic for a while.”
The message consumers are getting from the coverage of Enron’s woes is that “Enron equals deregulation,” he said. “Enron equals trouble. So it’s just a short step to deregulation equals trouble.”
Enron’s troubles could also deter investors from funding new power plants or distribution companies, further delaying restructuring since opening up the retail energy market depends on competition, Reid said.
And Enron was “the most active and visible proponent” in pushing for more competition in energy markets, Reid said, adding that no other energy company was stepping up to do that work.
While Enron was a dominant voice in the argument for deregulating electricity markets, it wasn’t the only one, said Jan Smutny-Jones, executive director of Independent Energy Producers.
“There’s a large number of policy makers, economists and analysts who advocate the move to restructure the markets,” he said. “I don’t think we should confuse what happened with Enron with the wisdom of restructuring.”
Bill Ahern of Consumers Union likes that state and federal regulators may be more cautious in deregulating energy markets.
“It’s the reconsideration that’s badly needed,” he said. “All this restructuring needs to be rethought.”
Before states open their electricity markets to competition, he said, they need to find a way to protect residential and small business customers.
“They get bad information, prices are volatile and there are not enough energy providers eager to serve the small energy users’ market,” Ahern said.