During the Depression, the federal government was
so concerned about the economic clout yielded by electric utilities
that it wrote a law to cap their size and keep their operations
distinctly regional.
That statute is still on the books 66 years later, but a more
recent federal law is pushing big utilities toward mergers that
strain their geographic choke chains — for some power companies,
their "region" now stretches across much of the country.
American Electric Power Co., the nation's largest power
distributor, does business with millions of customers in 11 states
from Texas to Michigan and Virginia. A pending deal between two
large utilities would create an even larger entity with business
interests in 19 states from coast to coast.
Critics complain that expanded service areas through
consolidation are not in the best interests of electricity
consumers, who would be at the mercy of mighty companies for the
most part free of state regulation.
"We're returning ourselves to where we were in the '20s and
'30s," said economist Dave Penn, deputy executive director of the
American Public Power Association, a coalition of municipal
utilities.
But defenders contend that the electricity business is changing
and that utilities have to change to remain competitive.
"The core model that used to exist is just going away," said
Graham Painter, a spokesman for Houston-based Reliant Energy Inc.,
which has national aspirations. "(Utilities) have to redefine who
they are and who they want to be."
Utilities are redefining themselves by setting up as registered
holding companies under the Public Utility Holding Company Act of
1935 — the same law whose onerous public-disclosure requirements
had for decades confined most of them within a single state.
The industry started looking at the statute differently in the
early 1990s, after a federal deregulation law was passed that
allowed non-utilities to generate and market electricity,
essentially breaking the legal monopoly that public utilities had
long enjoyed.
Adam Wenner, a Washington, D.C., attorney who specializes in
electric power issues, says governmental red tape became less of an
issue.
"It became tolerable, even though they have to get (Securities
and Exchange Commission) approval of virtually every corporate
activity," said Wenner, whose practice includes public utility
holding companies.
Twenty electric utility holding companies served more than 39
million customers by the end of 1999, according to the Energy
Information Administration's latest figures. Both figures have
roughly doubled since 1992, when the first electric utility merger
in a quarter-century occurred.
The biggest one yet is a pending marriage between Entergy Corp.
and Florida Power & Light that would create the nation's largest
utility — a generating capacity of 48,000 megawatts and more than 6
million customers.
The combined company, which had combined revenue of more than
$15 billion in 1999, has utility operations in five southern
states. It also has non-utility business — independent power
generation, power plant investing, energy marketing and trading,
and electric transmission — in much of the contiguous United
States.
Penn says consumers are ill-served by companies that operate in
many states using systems spanning 1,000 miles or more.
"Who are you going to call when it turns out the generation in
your region is owned by people elsewhere," Penn said. "You may
get a response, but not the same response as from utilities
chartered in your state and regulated by your state commission."
The Federal Energy Regulatory Commission oversees interstate
utility holding companies, though Penn says companies have been
able to stretch the definition of "regional" holding companies
set forth in the 1935 law.
His Washington, D.C.-based group unsuccessfully fought the
merger between American Electric Power Co., based in Columbus,
Ohio, and Central and South West Corp, which was headquartered in
Dallas. The deal, which gave the combined company 5 percent of U.S.
electricity market, closed last summer after 2 1/2 years of regulatory
scrutiny.
Al Destribats, executive director of the utility and
telecommunications practice at J.D. Powers and Associates, said the
number of major U.S. utility companies could shrink from 125 a few
years ago to 50 over the next decade. A similar consolidation could
occur among the non-utility electricity generators and marketers
that jumped into the market after 1992, he said.
Though non-utility generators, such as major California producer
Dynegy Inc., are acquiring capacity throughout the United States,
utilities remain the largest power generators.
Reliant Energy is among the nation's largest generators and
marketers, but its roots are in the utility business. Its Houston
Lighting and Power subsidiary distributes more electricity annually
than any other local utility.
By the time Texas fully deregulates its power market next Jan.
1, Reliant will have spun off its utility side operation to focus
on generation and marketing nationally, spokesman Painter said.
"All these utilities are changing internally the way they
operate, encouraging innovation," Painter said.
James Smith, a professor at Southern Methodist University in
Dallas, said unregulated non-utility operators eventually could own
most U.S. power generation, with traditional utilities limited to
transmission and distribution.
"I think it will be a successful trend because the core
companies doing this will do so efficiently," Smith said.
"Customers will choose the least cost, and further technological
innovation will cause further reductions in the cost of power."
California's two largest utilities sold off generation plants
under the state's embattled deregulation plan, though retail price
caps left them unable to pass rising wholesale costs on to
consumers. The Texas plan creates a wide-open market, though there
are measures in place to prevent one company from emerging as
dominant.
Wenner and others agree that other states might wait for
deregulation in Texas, the nation's second-largest state, before
proceeding themselves. Texas has plenty of capacity and a better
plan than California, he said.
"For competition to flourish, you have to let it happen,"
Wenner said. "People will build power plants so long as there's no
reason to think they won't make money."
