Enron Debacle, California Woes Put Damper on Energy Deregulation Talk

LOS ANGELES – Thanks to the Enron bankruptcy scandal, seesawing electricity prices and California's blackouts, the lights might go out for a while on plans to deregulate the energy market.

"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.

The bad publicity could provide fodder for those who oppose free-market reforms and favor instead a government-regulated system.

Ralph Nader’s Public Citizen is among the groups leading the charge to reverse the deregulation trend. "Deregulation has given us total volatility, increased prices, poor service," insists Tyson Slocum, director of research for the group.

But the prospect of ditching deregulation angers free-market lobbyists. "The answer from the Left to every crisis is: more government," said Grover Norquist of Americans for Tax Reform.

Norquist and other free-market proponents warn that more red tape isn't the answer.

"Freedom works," Norquist said. "Monopolies, price-fixing and radical environmentalism that doesn't let you build power plants for 20 years is a recipe for exactly what happened in California."

California approved a halfhearted effort at deregulation in 1996, capping the rates retail customers would pay but cutting loose the prices wholesalers pay. When those wholesale rates soared far above what customers paid, utilities amassed billions of dollars in debts. After a period of rolling blackouts, the state had to step up to buy electricity when the utilities' credit ratings were downgraded.

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.

The California debacle provided new fodder for those who opposed deregulation to begin with. "What we need to do is improve the old system we had, a regulated utility system that gave us constant prices, low rates and reliable service," Slocum said.

But another deregulation effort in Texas, which opened its energy market to competition this month, appears to be working so far, according to Reid. 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," Reid said. Still, he said, that probably won't "carry much weight in the capitols of states that haven't committed to deregulation."

But the collapse of Enron, which is now under investigation by several congressional committees, and California's fiasco, have put a damper and efforts to spread the Texas experiment. Reid said he doesn't see any lawmakers willing to promote market restructuring right now.

"They'll be steering clear of this topic for a while," Reid said. The message consumers are getting from the coverage of Enron's woes is that Enron equals deregulation, Reid added. "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.

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."

Catherine Donaldson Evans and the Associated Press contributed to this report.