|
ELECTRICITY RESTRUCTURING: COMPETITION--NOT ACCOMMODATION!
SPEECH BEFORE THE AMERICAN LEGISLATIVE EXCHANGE COUNCIL
BY KENNETH L. LAY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ENRON CORP.
AUGUST 13, 1997
Good morning. I know of no better place to discuss competition in retail electricity markets than here at ALEC, where you have, through your excellent model legislation and date-certain resolution, demonstrated your commitment to free and fair markets. And, more importantly, many of you in states like Maine and Nevada returned home after the model legislation was adopted and actually passed legislation which will soon offer choices to your constituents, choices they have never had before, choices that will enhance their lives in untold ways.
I will speak to some of the positive qualities of the legislation in those two states, but first, I'd like to share my views on the benefits of competition, where we are today in the competitive restructuring of the electricity industry, and what remains to be done to make this one of the most successful chapters of economic reform in the history of our great country.
Benefits
Our best guide to the future of this industry lies in where we are today and what we have learned from experiences in other competitively restructured industries. Our economy currently enjoys the benefits of competition in wholesale natural gas markets, where city gate prices have declined by 44% in real terms since 1984. As more customers at the retail level are able to chose their gas supplier, I might add, we expect the savings to be even greater, a fact that is not lost on the ALEC task force on natural gas restructuring that is now formulating model legislation on the subject. Because of Congress's passage of the Energy Policy Act of 1992 we are also beginning to enjoy the benefits of competition in wholesale electricity markets. Prices have declined in wholesale electricity markets, but residential and commercial consumers, urban and rural, by and large, are not seeing these benefits and will not until consumer choice at the retail level is a reality.
In telecommunications, the Telecommunications Act of 1996 has the potential to do for local telephone service what the court-ordered break-up of AT&T; did for long distance twelve years ago -- lower prices and improve customer service. I could go on and on and cite other industries where competition has delivered innumerable benefits. It is estimated that from the five network industries - the industries most like the electricity industry - where deregulation has occurred, the U.S. economy and consumers are currently realizing about $100 billion per year in savings.
I would refer you to the study co-authored by Dr. Jerry Ellig, who is speaking on the electricity panel scheduled for tomorrow morning, but let me just say that the very same promise of competition that has been delivered in industry after industry, is there for the taking in retail electricity markets--and that is why I am here to speak to each of you today - to urge you to complete the process of giving all consumers in your states meaningful choices with respect to who supplies their electricity needs.
Pace of Reform--And Your Opportunity
Fourteen states, including the two I mentioned earlier, have passed legislation or received commission orders setting a timetable for introducing retail electricity competition and consumer choice. Some level of inquiry with respect to the issue is now ongoing in virtually every other state in the country and at the federal level. But, it's clear that, with only a few modest and incomplete exceptions, state legislatures and state regulatory agencies have failed to fully recognize the urgent need for government action to remove barriers to entry - to break down and remove the formidable barricades of the monopolists...effectively and without equivocation.
It is also more evident to me, with every passing day, that we are at the beginning, and not the end, of the struggle for true consumer choice and competition in electricity markets...and state policymakers, by and large, are falling short of the mark in fully implementing the means to reach the end to which I believe we can all agree: That end being competition in retail electricity service to benefit consumers, each of your state economies, and the national economy.
Customers, your constituents, want choice because it gives them power in the market, instead of making them serfs of unresponsive monopolies. You have the ability to give them that power and I will discuss with you how that can be achieved, quickly and easily.
In order to fulfill the promise of competition in this industry, let us remember some of the fundamental truths that have guided us to this point:
- American energy consumers spend $300 billion annually on their electricity and gas needs.
- It is the largest single industry in the U.S. and the engine of our modern day society and all that it produces.
- It cools and warms the air in our homes and powers the machines that produce the products that the world envies.
As we acknowledge that our energy industry is the engine of our economy, we must also recognize that competition is the key that starts the engine. Yet competition does not just happen by passing a "customer choice" bill. It happens by carefully establishing competitive rules that allow effective entry and performance by new entrants and competitors to the incumbent monopolists.
Problems of "Consensus-Driven" Negotiation
I think we would all agree that electricity monopolies have a strong presence today in every state capital and before every agency that has historically regulated them. How many of you have not heard from your utilities on this issue? And just maybe you have heard from your utility a few more times than you would have liked. Couple this political power and prowess of the monopolists with the fact that policy makers view customer choice for electricity services as inevitable, there has been a lack of urgency with respect to both the timing of choice and the completeness and quality of providing for competition. What we are left with, given those political realities, is a rule-setting process that is the embodiment of consensus-driven negotiation which gives us at best half way measures and limited competition.
This is unacceptable, especially given the objective you as an organization have agreed upon. My attack on a consensus-driven process may surprise you, but it shouldn't when considered in the context that each day of delay in realizing open competition in the electricity marketplace is costing American consumers $200 million. The most amazing fact, however, is that electricity monopolies have not hesitated, as we all know, to continue to put thick curtains of red tape across the road to competition, even after full stranded cost recovery has been assured.
Think of it this way -- if most businesses were offered 100% compensation for all past investment mistakes, most of us wouldn't have the nerve to ask to stick around and design the deregulation process which would harm the consumers who just bailed us out. I ask you: should we allow monopolies to control the rules-setting process on the road to consumer choice and competition? The answer must be a resounding no!
If we are to continue the economic resurgence that is sweeping our nation, a resurgence that in part has been driven by the competitive opening of previous monopoly markets, the answer to electricity monopolies, when they ask for more, when they seek to delay competition, when they seek to design road blocks to deny your constituents choice must be no. We must finish the work that has begun and truly open this country's retail electricity markets, with both haste and completeness.
An appropriate metaphor for this dilemma is one of being challenged to jump across a canyon, perhaps one not unlike the Snake River Canyon in Idaho, which Evil Knievel once attempted to clear in his rocket car. On the one hand, you have the electricity monopolies who would prefer not to have anyone join them on their side of the canyon - they would prefer to keep everyone out of their markets.
Monopolists are generally like that you know - they don't like competition and they would certainly like to just move from being a regulated monopoly to being a deregulated monopoly. On the other hand, you have new competitive suppliers who know that the framework for new entry must not yield to the sirens of the monopolists and that they must reach the other side of the canyon to even have an opportunity to compete effectively. And then you have customers waiting for someone to join them on the other side and give them new innovative alternatives - they would just like to have some companionship over there other than their friendly neighborhood monopoly. Unfortunately, we have policy makers in this process who have accepted the notion of a consensus-driven process and are willing to let monopolists set the rules so that new market entrants are able to jump only halfway across the canyon - in other words trying to jump the abyss in two bounds - not much fun. Well, most of us remember what happened to Mr. Knievel when he only made it halfway across the Snake River Canyon - his rocket car ended up at the bottom of the canyon and he suffered severe injuries. The same injuries will be visited upon competition in electricity markets and its attendant benefits if policy makers persist in "halfway" reform.
This "halfway" approach to consumer choice has manifested itself in many ways, including: a delay to competition as we see emerging in places like Arizona and New York; a refusal to recognize that competitive services cannot, in an effectively functioning marketplace, continue to be provided by the provider of essential monopoly services except through a separate affiliate who has to compete in the deregulated market in identically the same way as new entrants. This includes the provision of competitive services for non-choosing, or default, customers - we must find market-based solutions for the delivery of these services and allow only competitive affiliates of the monopolies, with properly structured and enforced codes of conduct, to participate in the delivery of competitive solutions. This includes complete unbundling of metering, billing and other services. This includes the non-regulated affiliates not being allowed to use the monopolist utility's name - available brand paid for lock, stock and barrel by ratepayers.
We must eliminate all opportunities for the remaining monopoly functions in this industry to advantage, in any way, any supplier of competitive services - it must be a true level playing field for all participants. We have, thus far, seen a failure to effectively address this issue in places like California and Massachusetts.
We must demand that to the extent stranded cost recovery is permitted, that the mechanisms for recovery of those costs do not have an anti-competitive impact and result in the delay of consumers receiving the full benefits of competition. California has failed in this regard by constructing a stranded cost recovery mechanism that assures that the efficiencies of the marketplace will only result in a higher transition charge for the monopolies, not in a proliferation of consumer benefits and competitive suppliers and the multitude of services and products that invariably accompany the growth of competition. This would be like finding bananas for a lower price at a competing grocery store, but then having to pay a surcharge to the more expensive store for the savings difference.
By allowing its stranded cost charge to fluctuate based on the market price of electricity, where lower prices cannot reach the bottom line of the customer's bill, the efficiencies and cost savings generated by the market in California will be captured by the monopolies, not consumers, unless this is changed. The good news is that we have the ear of the market-oriented commission in California and are fighting to get it changed.
We must reject the construction of these anti-competitive monuments, designed by none other than the electricity monopolies who refuse to fathom that the public interest goal is to maximize competition and consumer savings - not maximize the advantages of the monopoly incumbents and their affiliates. We must reject the multitude of anti-competitive solutions that have been the result of an accommodationist approach to policy making in this very important industry restructuring - the most important industry restructuring in the history of our country.
Our perception of what is happening in the development of competitive electricity markets has been reinforced by our observations with respect to the development of competitive local telecom markets. Our friends in the competitive long distance business -- who also wish to provide local telecom services -- have documented over and over again that the
local telephone monopolies are moving on three fronts, using -
- the tactic of delay,
- the tactic of disruption of service and
- the tactic of discriminatory treatment of new entrants.
Local monopolies, whether in local telecom or retail electricity markets, are inventing endless new ways to keep their markets closed. These obstructions, delays, and disruptions, whether in the context of local telecom or retail electricity markets, cost consumers by not allowing the promise of competition to be effectively delivered - they are calculated machinations of cozy monopolists; and state policymakers must start to say no, now.
Why do we make such bold statements? Why do we expend our limited resources and political capital on this issue?
- Because Enron is a competitive company by nature.
- Because we believe in free and fair markets.
- Because we go where the opportunities are.
- Because we often go where only monopolies have gone before.
- Because we're fighting to have retail electricity markets that are competitive in fact and not just in word and...
- Because we'll fight as long as we have to, as hard as we have to but, we cannot do it alone -
We need your help in rejecting the anti-competitive overtures of electricity monopolies.
You, each of you, must reject accommodationist solutions as you have begun to in states like Maine and Nevada.
In Maine, you have just said "yes" to competition for competitive services like metering and billing; in Maine you have said yes to allowing default competitive electricity services to be competitively bid for by all suppliers rather than just handing them over to the monopolies who have not done a single thing to earn them; in Maine you have said yes to tough, but fair, restrictions on non-regulated affiliates of monopolies.
In Nevada, you have said yes to keeping the provider of monopoly electricity services out of the business of providing competitive electricity services, except through a level-playing-field affiliate.
In both Maine and Nevada, you have begun to reject the anti-competitive rhetoric of the Edison Electric Institute and most of their members. These monopolists refuse to do what's right for your constituents...constituents who are really customers, not captive ratepayers. It would be better that EEI and their fellow monopolists talk about the virtues of monopoly and show themselves for what they truly are -- unabashed monopolists - rather than hide behind their so-called "competitive" rhetoric. "Let's get it right" should not be accepted as a plea for delay as EEI would have it; rather, it should be a call to arms, a call to finish this revolution -- to enfranchise consumers in this last bastion of the monopolists, and to deliver the price and service benefits that American consumers so richly deserve.
In the months ahead, we intend -- in the interests of our company, the electricity industry, and American consumers -- to be the people's cops - to blow the whistle on monopolies and to challenge legislators and regulators to get the job done, done right and done now. How does this happen?
- We expose all of the machinations of the electricity monopolists, such as the very misleading, if not fraudulent, poll by Citizens for State Power, a monopolist utility front group, attempting to discredit the ALEC date-certain model resolution; and
- We continue to articulate and quantify the benefits of competition in the electricity marketplace; and
- We fight for the following basic standards to be implemented by all state and federal policymakers:
- competition for all competitive services
- non-discriminatory access and pricing of essential monopoly services
- getting the monopoly out of the provision of competitive services, except through a separate affiliate that gets no preferential treatment in the marketplace
- and finally, to do all of the above...NOW
These four basic points are essential to "getting it right," and I dare say that the Edison Electric Institute knows in their heart of hearts that this is what real competition in retail electricity markets requires.
Conclusion
But the charting of the course to competition will take resolve and leadership. I've seen competition work to benefit our customers. I've seen the customers of our competitors benefit from competitive changes in the gas and electricity industries. It is time to extend these competitive changes to all electricity consumers in our great nation.
A time of change, however, is a time that calls for strong leadership, for public-policy heroes like many of you here. Fundamental change never comes easy. To get there, we will need intelligent, farsighted governmental action, the kind represented by the actions of legislators in, for example, the state of Maine. We need continued resolve and leadership from each of you.
You are the ones who will shape how the public views the advent of retail electricity competition. I believe public leadership is about ensuring that the needs of the future are addressed today. And, so I ask you, as you meet here, and as you return to your states, to continue your hard work on behalf of the creation of new, vibrant markets in what can soon be, one of America's greatest and most competitive industries. It's not good enough to avoid harm. We can do better - much better. We can "do it right" by simply remembering: competition, not accommodation, works.
Thank You.
 |
