Power cos. navigate divergent market regulation

By Eileen O'Grady

NEW YORK (Reuters) - U.S. electric executives, who once dreaded the patchwork of regulated and unregulated power markets left by the 2001 collapse of Enron Corp., have learned to navigate the industry's turbulent waters, executives said at the Reuters Global Energy Summit in New York.

While "a purer model would have more clarity," John Bryson, chief executive of Edison International (EIX.N: Quote, Profile, Research, Stock Buzz) said he sees no end to state regulatory involvement in U.S. power markets.

"Whether as a result of tradition or the importance of electricity to a state's economy, you'll see regulatory intervention in the markets," Bryson said.

The landscape of U.S. electric regulation has become even more convoluted as Maryland, Virginia, Connecticut and California move in different directions in response to rising power prices and shrinking power supplies.

Turmoil in Illinois has become a "firestorm," said Thomas Farrell, chief executive of Dominion Resources Inc. D.N., which operates in Virginia's recently re-regulated market and as a major unregulated power producer in New England.

Illinois elected officials, outraged over a dramatic rise in power prices seen as regulators introduced market rates this year after a 10-year rate freeze, are moving to extend the freeze even as Exelon Corp. (EXC.N: Quote, Profile, Research, Stock Buzz) unit Commonwealth Edison Co. and units of Ameren Corp. (AEE.N: Quote, Profile, Research, Stock Buzz) threaten to seek bankruptcy protection if rates are rolled back.

As the legislation appeared to gain momentum in the state Senate last month, ComEd and Ameren proposed a $500 million package of "rate-relief" measures in an effort to derail passage of an unfavorable law.

ComEd is hopeful that an agreement can be reached to avoid an adverse bill, said a spokeswoman.

Bruce Williamson, chief executive of Dynegy (DYN.N: Quote, Profile, Research, Stock Buzz), an unregulated company that sells power to Ameren and other Illinois utilities, said lawmakers unfairly blame deregulation for higher electric rates, ignoring the fact that costs for all forms of energy have risen in the past decade, and that price increases can not be "wished away."

Although Dynegy has no retail customers, the company is willing to contribute to rate relief in Illinois, he said.

In Texas, considered the most robust U.S. market for electric competition, lawmakers spent five months debating more restrictive market rules although they failed to reach agreement before the session ended in late May.

Industry officials seem to have given up on earlier calls for a level playing field between regulated and unregulated operators.

Even as the owner of unregulated power plants in New England, Dominion's Farrell said he supports a Connecticut plan to allow regulated utilities back into the generation business as Dominion competitors.

On the other side of the coin, Edison's Bryson said a move by California regulators to reintroduce competition between retail suppliers is being done in a "sober environment," unlike the head-long rush toward deregulation in the late 1990s that resulted in a flawed design and widespread power disruption.

Bryson wants regulators to ensure that utility investments made to upgrade the state's infrastructure continue to be borne by all consumers through non-bypassable charges.  Continued...