By Martha M. Hamilton
Washington Post Staff Writer
Wednesday, March 25, 1998; Page C11

The Clinton administration today plans to wade into the debate over opening up the $212 billion retail market for electric power to competition, offering a plan that steers a middle ground between a free-market approach and protection for the environment, sources said.

Environmentalists, however, lost a bitterly fought battle to use the proposal as a tool to help limit emissions of carbon dioxide – the principal gas blamed for global warming.

The administration hopes its plan will jump-start a stalled congressional effort to deregulate the electric utility industry and lower consumer costs. The proposal, an approximately 80-page outline of principles rather than a draft bill, would require states to decide by a certain date whether to move into a world in which consumers could shop for their supplier of electric power, just as they now can choose among providers of long-distance telephone service, sources familiar with the proposal said. But states could choose to opt out of the new system.

Among other provisions, the Clinton proposal for restructuring creates a $3 billion "public benefits fund" that would match state spending for research and development in renewable energy and energy efficiency and for assistance to low-income consumers, sources familiar with the proposal said. The fund would be financed by a surcharge of one-10th of a cent per kilowatt-hour of electricity sold.

The proposal has been long in the making – and frequently revised – because of the difficulty of reaching accord on the environmental issues. The industry now is dominated by heavily regulated regional monopolies. Environmentalists have raised fears that power companies would turn to cheaper, dirtier fuels in the race to win market share, jeopardizing gains in reducing pollution and making it harder to limit emissions that have been blamed for global warming.

The administration proposal addresses some of those concerns. It creates a system that would set limits on emissions of nitrogen oxides and allow power companies to trade emissions credits and requires power sellers to include renewable energy, such as solar and wind power, in their portfolios. But it leaves out one key proposal that the Environmental Protection Agency and environmentalists had hoped to win, and which utilities had fought, sources said – a limit on the emissions of the greenhouse gas carbon dioxide, which is created by burning fossil fuels.

Last year, Congress had appeared poised to move forward on legislation deregulating the electric utility industry, following in the path of legislation that opened up other industries to competition – including the airlines, long-distance calling and trucking – that once were heavily regulated.

That effort stalled, in part because of the complexity of the issues, but similar efforts have moved ahead in more than a dozen states. States that already have deregulated would be grandfathered in and allowed to maintain the structures they have created.

Last week, Energy Secretary Federico Peña said he believed passage of federal legislation this year was possible and he was "hopeful that we can, once we engage, encourage key leaders on the Hill to move their bills forward." Rep. Dan Schaefer (R-Colo.), chairman of the House Commerce Committee's subcommittee on energy and power, subcommittee member, Rep. Edward J. Markey (D-Mass.), both have proposed bills, and House Commerce Committee Chairman Thomas J. Bliley Jr. (R-Va.) has said that he hopes Congress will act.

The administration plan also would require power sellers to obtain 5.5 percent of their power from renewable sources. But the proposal also would set up a renewable credit system that would allow a company that couldn't produce power from a renewable source at a reasonable price to buy credits for renewables from some source – such as a West Texas wind farm – that could.

The proposal also includes requirements for power companies to disclose to consumers the level of their emissions and the kind of fuel they use to produce electricity.