A Smart Way To Help Electric Utilities

The fight over how to deregulate phone service gets most of the headlines. But there's another deregulation battle going on. Without much fanfare, the electric power industry is coming free of government regulation--and there's a big question about who will pay the bill for the change.

Last April, Washington deregulated the transmission of electricity between utilities. Now, the states are getting into the act as well. Led by California and New Hampshire, they will soon begin allowing new competitors to produce and sell electricity. Eventually, electricity prices will drop.

The problem? U.S. utilities own about $150 billion of generating capacity that will be unneeded or unprofitable once competition reduces rates. Much of it is nuclear. Under regulation, consumers were forced to pay for these power plants. With unfettered competition, consumers will choose to buy their electricity from cheaper producers who are not saddled with unnecessary expenses. The result will be an economic loss for utilities as big as the savings and loan disaster.

The right thing to do is to share the pain. Consumers should pay for costs that utilities couldn't avoid, such as government-mandated contracts to buy power above market rates. But regulators should force utilities to bear most of the costs that could have been avoided with prudence and foresight, such as unneeded, gold-plated generating plants.

No matter what is done, it should be done quickly. The lesson of the S&L crisis: Far fewer savings banks would have gone bankrupt if their problems had been dealt with early. Utilities and ratepayers need to recognize and deal with the mistakes of the past if deregulation is to pay off in the future.

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