WASHINGTON — Several states that have strong plastics industries are poised to deregulate their electric utility industries, adding to the rush of higher-cost states that already have taken such actions.
Michigan, Ohio, Texas and New Jersey — among the 10 largest states for plastics processing —are looking to deregulate and have decent political prospects for doing so in the near future, observers predict.
But deregulation remains in its early stages, and some processors that have been part of California's early efforts say they are disappointed that the reality of their rate cuts has not lived up to the hype.
The push to competition suffered a jolt this summer, when electricity shortages in the Midwest briefly pushed prices from around $40 per megawatt-hour to $7,500. A Nov. 19 report from Ohio regulators warned that shortages could recur but more competition in the generation market and better coordination of the transmission system could help.
Electricity costs can influence where companies locate plants, though customer location and other factors remain more important in many cases. According to a trade association survey, electricity is about 5 percent of a typical processor's expenses, making a cut of about 10 percent in electric rates worth about half a percent to the bottom line.
So far, California's deregulation has not lived up to expectations, said Paul Appelblom, president of injection molder and mold maker Jatco Inc. in Union City, Calif.
Proponents of deregulation had said it would cut rates 40 percent, then they scaled back and talked about a 20 percent decrease, but the reality has been closer to 5 percent, Appelblom said.
Jatco has yet to sign up for a competitive electric carrier, in spite of the $50,000 a month it spends on electric bills. But another company Appelblom owns, Master Plastics Inc., has seen only about a 5 percent cut in rates, he said. Master signed up with a competitive provider called New Energy Ventures Inc., part of a program organized by the Washington-based Society of the Plastics Industry Inc.
``I am very truthfully upset and dismayed that ... the reality is very far distant from what had been talked about,'' Appelblom said.
A spokesman for Los Angeles-based NEV said reality might not be meeting expectations because sales people probably hyped it, and because the California system is not fully deregulated.
``The market in California is still in a transition phase,'' said NEV spokesman David Potter. ``I would say that a 20 percent savings would be an achievable number in a fully competitive market.''
He said California consumers must pay a transition charge to fully compensate the old utilities for stranded costs — plants that utilities argue they were forced by state regulators to build but that cannot produce power at competitive rates. Some customer groups argue the utilities built those plants foolishly. California's transition charge will begin to go away in 2002, he said.
The power distribution and delivery system remains a regulated monopoly, Potter said.
NEV sells power only to businesses, and its customers have seen average price decreases of 7-10 percent, Potter said. California's system mandates a 10 percent reduction in rates for homeowners and small businesses.
California voters sent a strong signal Nov. 3 that they favor deregulation, rejecting a referendum that would have overturned a key part of the state law, Potter said. Massachusetts voters also voted in November to retain their existing deregulation plan.
Ohio, the second-largest state for plastics processing based on value of product shipments, is watching California closely and does not want to repeat the Golden State's problems, said Dick Kimmins, a spokesman for the Public Utilities Commission of Ohio, the state's utility regulator.
The chief deregulation proposals — known as the Mead-Johnson bills — are very favorable to business and residential users of electricity, said Michelle Griffiths, director of governmental affairs for the Ohio Council of Retail Merchants and spokeswoman for the Coalition for Choice in Electricity.
The coalition represents businesses, including chemical and petroleum companies, and some residential groups.
Ohio legislators made a strong push last year, and observers said many legislators want action early in the new legislative term.
But a series of closed-door meetings between utilities and their customers to iron out some issues is not making progress, Griffiths said.
``The utilities are pretty much remaining firm ... and the customer groups are remaining firm,'' she said. ``This will definitely be a priority when the Legislature comes in. The hope is we can emerge with a bill that the utilities do not like very much.''
A spokesman for First Energy Corp., the electric utility for most of northern Ohio, said the Mead-Johnson bills do not let utilities recover enough stranded costs — and will be challenged in court as they are written now. The legislation also puts consumers in buying pools whether they want to be or not, said Ralph DiNicola, spokesman for Akron, Ohio-based First Energy.
He also said utilities want to see the taxes continue to go to local governments, rather than the state government in Columbus.
In Michigan, legislators are racing against a mid-December adjournment of a lame-duck session. If deregulation does not pass by then, changes in the Legislature caused by term limits will eliminate much of the institutional memory on the complex topic and mean it could be several years before a bill passes, said a spokesman for Detroit Edison Co.
The chief bill being considered is pro-utility and not favorable to consumers, said Richard Studley, senior vice president of government affairs for the Michigan Chamber of Commerce in Lansing.
The ``seriously flawed'' legislation would let utilities recoup too much in stranded costs, freeze Michigan's already high rates rather than lower them, and tack on a transition charge to customers who choose an alternative supplier, Studley said. ``At best the bill codifies the status quo, and at worst it will result in rate increases,'' he said.
He said Michigan Gov. John Engler supports the legislation.
Lew Layton, spokesman for Detroit Edison Co., said the legislation would codify actions taken by the Michigan Public Service Commission: ``It seems to be headed in the right direction.''
Layton said a rate freeze would provide incentives to control costs, and he said it includes provisions to see that utilities do not overcharge or undercharge for stranded costs.
Another state pushing to pass legislation soon is New Jersey. Leaders of its Senate and Assembly want to pass a bill in December, said Lisa Camooso, associate director of government affairs for the Chemical Industry Council of New Jersey in Trenton. She declined to predict what will happen but said New Jersey's Legislature sometimes moves very quickly.
That rush could be a problem because the bills with the most active support are very favorable to the utilities, she said. They allow recovery of all stranded costs and only a 5 percent rate reduction, she said.
New Jersey's largest utility, Public Service Electric and Gas Co. in Newark, thinks the bills are ``both prudent and doable,'' said spokeswoman Kathleen Ellis. The legislation, written by the president of the Board of Public Utilities, New Jersey's regulatory body, allows for rate reductions of 5-10 percent, she said.
It also allows recovery of all stranded costs, and lets BPU determine that amount. But if unfavorable amendments are added to the bill, that might keep it from passing in December, she said.
In Texas, some legislation is expected in 1999, but observers said it is too early to say what it will look like. Plans came very close to passing when legislators last met in 1997.
Senate and House members are developing legislation, and the Texas Coalition for Competitive Electricity and investor-owned utilities have been meeting to develop common ground, said Mark Shilling, executive director for Austin-based TCCE.
``I believe we will have a bill that will pass,'' he said. ``I don't know if it will be the whole enchilada, or if it will be some sort of pilot program or phased-in program.''
Momentum is building for deregulation because other large-population states that Texas competes with for business are doing it and because the state does not want the federal government passing legislation that could pre-empt state efforts, said Walt Baum, legislative policy director for the Association of Electric Cos. of Texas in Austin.
In the nation's capital, electricity deregulation has stalled consistently. Observers say they are optimistic a bill will be passed in the next session of Congress but caution the landscape is not clear.
The Clinton administration has given a green light and Sen. Frank Murkowski, R-Alaska, chairman of the Senate Energy and Natural Resources Committee, is drafting a bill, said an official with the Chemical Manufacturers Association in Arlington, Va. But key House Democrats, like Rep. John Dingell, D-Mich., do not seem very interested, the official said.
``I think there will be a lot of interest coming out of the gate,'' said James Owens, a spokesman for the Edison Electric Institute in Washington. ``But there is still not consensus. There's still a lot of ambiguity about what the federal role would be.''