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Electricity Deregulation Update (8-14-00)

Electricity deregulation has the potential to have a significant impact on the environment as well as energy producing industries.  The Clinton administration's proposal would require utilities to generate 7.5% of their power from renewable energy sources by 2010.  Some parties involved want hydroelectric power included in the 7.5%, but the administration seems committed to counting only developing energy sources in this percentage.  This distinction could play a key role in the further development and use of hydroelectric power, and thus the future of America's rivers.  The development of new energy sources, called for under this legislation, could change the mix of energy sources, affecting geoscientists employed by the petroleum and coal industries.  Deregulation legislation supporters also promise environmental benefits.

Most Recent Action
 It seems that California's recent electricity deregulation may have resulted in disruptions to electricity reliability and supply.  Brownouts and wildly fluctuating electricity prices have plagued the state all summer.  Governor Gray Davis (D) responded by instituting price caps at $250 per megawatt-hour in an attempt to attract private investment in new power plants.  He also said he will see to it "that bureaucracy is not the cause of delay."  Analysts in part blame the fact that no new power plants have been built in California in 10 years and that increasing demand has rapidly approached capacity.  Davis and the Federal Energy Regulatory Commission also launched a joint state and federal investigation into possible market manipulation by the utilities.   Secretary of Energy Bill Richardson and Sen. Harry Reid (D-NV) announced that DOE will be funding $3.5 million to 21 private companies who have agreed to expand the use of geothermal energy sources in California, New Mexico, Nevada and Utah.   The program will target increases in research and development in small-scale geothermal power plants, enhanced geothermal systems technology, and geothermal resource exploration and definition.  Richardson's goal is to increase geothermal's role to 10 percent of total western electricity supply by 2020.  Funding will be split between DOE and private firms over the next three to five years. (8/11/00)

In the House, Rep. Joe Barton (R-TX), chairman of the House Commerce Energy and Power Subcommittee released a discussion draft on restructuring the utility industry, just before the summer recess.  On Capitol Hill, Reps. Frank Murkowski (R-AK) and Jeff Bingaman (D-NM) are said to be working on a compromise plan that may be a precursor to consensus legislation.  The Senate Energy Committee has held four hearings on utility restructuring so far this session.

Summaries of several House and Senate hearings have been prepared by AGI/AIPG geoscience policy interns and are available on this website at

Action in the 106th Congress
Early in the 106th session of Congress, the Senate picked up where it left off in the last session on deregulating the electricity industry. On February 11, the Senate Banking Committee voted out legislation, S. 313, introduced by Senator Richard Shelby (R-AL), to repeal the Public Utility Holding Company Act of 1935 (PUHCA) and replace it with PUHCA of 1999. The original PUHCA regulated electric utilities by giving specific and separate powers to the states and the federal government. PUHCA does not allow holding companies to own or operate utilities beyond contiguous states, which has been an impediment to those trying to encourage retail competition in the electricity industry. In addition, PUHCA prohibits holding companies from investing in or acquiring non-utility businesses. The new legislation would streamline regulations that would allow over 200 companies to participate fully in retail competition. S. 313 is similar to S. 621, legislation introduced in the 105th Congress.

Although S. 313 has widespread support, many members of Congress -- as well as the Clinton Administration -- feel PUHCA reform should come as part of a larger effort of restructuring the electric utility industry and may oppose passage of the bill. More on the issue of electricity deregulation is available on the AGI website.

In the House, the Commerce Subcommittee on Energy and Power held a hearing on March 18 and plans to hold six to eight more hearings by mid May. The testimony of the witnesses from these hearings is available on the House Commerce Committee website.

On April 15, the Clinton Administration released its plan to restructure the utility industry, which calls for states to open their markets to competition by January 2003. The plan does, however, contain language that would allow states to opt out of competition. Under the proposal, utilities would have to provide 7.5% of their power from renewable energy sources by 2010. The bill would also allow federal utilities to compete with the private sector and would establish a $3 billion fund to maintain energy conservation programs and assistance to low-income households -- programs that utilities may cut in a competitive marketplace. According to White House sources, the restructuring effort would save US households an average of about $232 per year on power bills, while helping to reduce greenhouse gas emissions.

On May 20, the House Subcommittee on Energy and Natural Resources held a hearing focusing on the controversial issues of stranded cost recovery, PURPA, and the place of renewable energies within the context of electricity deregulation. Witness testimony disagreed on whether the federal government or states should be responsible for stranded cost recovery policies and whether these costs should be passed on to rate payers with fee increases or be borne by the shareholders. PURPA came under fire, from witnesses, as having outlived its usefulness and of being an impediment to truly competitive markets. Witnesses testified on the state of renewable energy production and how consumers have modified their electricity choices when offered blends that include renewable energies. Testimony and questions by representatives focused on whether simply establishing a competitive market would encourage production of cleaner fuels or if legislation should mandate a certain percentage of renewable fuels in all electricity blends.

Debate over electricity deregulation continued June 17, 1999 as Department of Energy Secretary Bill Richardson testified before the House subcommittee on energy and power.  Members asked a wide range of questions clarifying various pieces of the Clinton administration's proposed legislation.  Representatives were particularly interested in why Richardson believes federal action is necessary when many states have already passed their own deregulation legislation.  Several specific questions were raised about the opt-out clause the proposal offers to states. With a few exceptions on both sides of the isle, their seemed to be wide-spread support for deregulation although there are clearly continuing conflicts over which proposal is best. Rep. Steve Largent (R-OK) and Rep. Edward Markey (D-MA) have introduced H.R.2050. The administration proposal, H.R.1828/S.1047, is also being considered.  At the hearing, Rep. Frank Pallone (D-NJ) promised to reintroduce a deregulation bill that would include greater environmental protections than the other two proposals.  Efforts to create compromise legislation continue and more hearings may have been held after these hearings.

A panel of alternative energy generation experts appeared before the Senate Committee on Energy and Natural Resources on June 22, 1999. Each witness stressed the societal benefits of alternative energy generation, and the two senators who attended the hearing expressed support for such new technology. The senators questioned whether federal legislation is necessary to encourage development. They were assured that it is necessary although panellists disagreed as to how quickly it needs to be implemented.

Congressional members in favor of deregulating the $200 billion-a-year industry -- the last government-protected monopoly -- argue that deregulation will reduce prices and provide consumers with better service in a manner similar to the deregulation of the airline and telecommunications industries. Reduction of prices comes not only in a consumer's electric bill, estimated to fall between 15-43%, but also in all goods and services, since electricity is a fundamental cost at the core of the economy. Debate rages within the pack of supporters on the best way to complete the process. Some members believe that a deadline should exist by which time all states would have restructured markets that allow for consumer choice, but others feel states should not be subject to a deadline.

Many of those who oppose deregulation believe that Congress should defer to the states and that a Congressional policy is an imposition of states rights. Some also contends that while some consumers will benefit from lower prices, an equal number will pay more as prices nationwide level off. Environmental groups are concerned that states with more stringent air standards will be penalized, as power could be produced more cheaply by electric plants in areas with little pollution control.

A main issue that needs to be resolved in deregulating the industry is how to handle the stranded costs in utilities that had heavily invested in plants and equipment that may prove ineffective in a deregulated market. The utilities are demanding that they be given the opportunity to recover these costs, but it is not clear if the utility shareholders or ratepayers will shoulder this burden.  A summary of the May 20 hearing is available at

Extensive information on this topic is available on the Committee for a National Institute for the Environment website.  CNIE has also posted a number of Congressional Research Service reports relating to electricity restructuring on its website including:
    "Electricity: The Road Toward Restructuring" (6/17/99)
    "Electricity Restructuring: Comparison of H.R. 667 and S. 516" (6/16/99)
    "Renewable Energy: Key to Sustainable Energy Supply" (5/27/99)
    "Renewable Energy: DOE's Funding and Markets for Wind Energy and Solar Cell Technologies
        GAO" (5/14/99)

Sources: Hearing testimony, EESI, Greenwire, EEnews.

Please send any comments or requests for information to the AGI Government Affairs Program at

Contributed by Kasey Shewey White, AGI Government Affairs, and AGI/AIPG Geoscience Policy Interns Althea Cawley-Murphree and Audrey Slesinger.

Last updated August 14, 2000.

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