CURRENT DEVELOPMENTS

JOYCE BARRETT

WASHINGTON (FNS) -- Industry exertions to forge a national agreement on electricity deregulation, with its promise of millions in power cost savings for supermarkets, have stalled on Capitol Hill. Some observers are predicting that individual states' efforts will provide the models for deregulation.

Nearly all the states are examining the possibilities of deregulation. Fifteen states have enacted deregulation legislation, another 13 have pilot projects under way and three -- California, Mississippi and Rhode Island -- are on the verge of unbundling generation, transmission and distribution costs. Most of the remaining 19 have assigned the matter to state agencies or legislative commissions for study.

For the supermarket industry, deregulation could mean significant savings. Next to labor, energy is the industry's biggest operations expense, and it's estimated that deregulation could pare energy bills by 24% to as much as 60%, depending on usage patterns and location.

The greatest savings could occur where rates are the highest: New England, New York, California and parts of the upper Midwest.

Deregulation efforts crystallized on Capitol Hill last year with the opening of the 105th Congress, and proponents vowed they would be relentless in their advocacy. Despite extraordinary amounts spent lobbying for deregulation, however, organized labor, giant utilities, retiree organizations and rural electric cooperatives mounted their own adversarial campaigns.

By the end of the legislative session, House Speaker Newt Gingrich, R-Ga., predicted that Congress would fail to devise a plan this year. Most in the industry agree.

"I'm hearing the federal government will wait until at least half the states go with some kind of program and then will pick up the loose ends, which will in turn spur the other states to action," said Mary Dechow, government relations manager for Spartan Stores, Grand Rapids, Mich. "I'm not sure the motivation is there and I don't think the federal government feels the need to supersede the states."

Early predictions that the 105th Congress would act on electricity deregulation were optimistic because something this large takes several congressional sessions, said Kevin Burke, vice president of government relations for Food Distributors International, Falls Church, Va.

While favoring deregulation, FDI so far has not endorsed any plans on Capitol Hill and instead is waiting to see what evolves in the states.

"It makes a lot of sense to have federal overarching rules and regulations, but the states are out there marching forward," said Craig Sadick, vice president of state government relations for the Food Marketing Institute here.

The supermarket industry is seeking "competition in the purest sense," he added, because that will drive prices down.

The industry is also seeking authority to aggregate its power buys, which would permit stores to form purchasing pools to leverage buying power. This would benefit chains with several stores in a utility's service territory, as well as individual operators, wholesalers and distribution centers that could join user associations.

"We are running electric power sources 24 hours a day," Sadick said. "We want pure competition and aggregation."

Tom Jackson, president and chief executive officer of the Ohio Grocers Association, said that grocers would benefit more than any other retailing group from deregulation. "We have the most to gain from this," he said.

"There are industries that use more electricity, but they have already gone to providers and gotten a better deal than we have," he added. "We use more energy than any other business in the retail sector and at this point, few of our people have enjoyed a great deal."

Jackson praised a recently unveiled electricity deregulation plan he helped devise for Ohio's $11 billion electric industry. The plan would begin a five-year phase-in of deregulation in 2000, although transmission and distribution services would continue to be regulated. Generation, transmission, distribution, ancillary generation and energy services -- including metering, billing and collection -- would be available and priced separately. The state would be divided into retail marketing areas, and customers could choose whether to participate in an area and select their own generation supplier.

Jackson said he especially liked the idea of the retail marketing areas, but stressed that his backing was dependent on whether chains can pool all of their outlets for electricity buys.

The Edison Electric Institute here, which represents utility companies hesitant to endorse deregulation, favors state action over federal legislating. "Those issues dealing with interstate rates and consumer issues should be left to the states," an EEI spokesman said. An absence of consensus on the best route to deregulation is also impeding federal legislative progress, said Susan Fiemietkowski, FDI's director of government relations. Current electricity rate structures are devised to give industrial and residential users the cheapest rates, and retailers and other commercial users are forced to pay higher rates to subsidize them. Some proponents of deregulation see it as leveling the rates for each user category

One significant problem for utilities, however, is their ability to recover what they term "stranded costs," a laundry list of expenses including bond payments on power plants, decommissioning costs on plants, and any costs that could be incurred if deregulation occurs -- such as employee retraining and restructuring. The utility industry estimates stranded costs at $130 billion.

While half a dozen plans have been introduced in the House, Rep. Dan Schaefer, R-Colo., has introduced the most popular version. His plan is before the House Commerce Committee, and plans for its consideration this year are still incomplete. Schaefer would require deregulation by Dec. 15, 2000.

In the Senate, deregulation is more problematic because of the unremitting opposition from Sen. Frank Murkowski, R-Alaska, chairman of the Senate Energy and Natural Resources Committee. Murkowski prefers to see states act instead of imposing federal mandates "that aren't necessary," an aide said. "Most Republicans believe that states know what is best for them. They are competent and there is no reason to step in front of them and halt progress."

Another obstacle confronting the Senate is that power costs in the Northwest are generally low, and so senators from that region don't want to see their costs raised so rates in other parts of the country can be lowered.

In a move seen by some as symbolic of a breakthrough, Sen. Slade Gorton, R-Wash., has co-sponsored a bill with Sen. Dale Bumpers, D-Ark., that would require deregulation by Jan. 1, 2002.

To appease those from the Northwest, the bill would require utilities in low-cost power regions to reimburse consumers for increases in the costs of their power. It also would require utilities to draw a percentage of their power from renewable sources, including hydropower.

Because of Gorton's backing of the Bumpers' bill, Bill Manteria, vice president of state association affairs for the National Retail Federation here, sees chances of success for congressional action this year. Manteria is also working with a broad-based business coalition with nearly 250 members -- Competitive Utility Rates for Everyone -- which advocates deregulation.

"As more states act, it will be incumbent on Congress to do something," Manteria said. He predicts action early in House committees this year and a floor vote by the Fourth of July. "Once that happens, the Senate will have to take action, and when they do, we'll have a good chance of getting legislation through Congress," he said.