Potomac Electric Power Co.'s plans to sell its power plants suffered a setback this week when D.C. regulators canceled plans for a hearing on the proposed sale. They ordered the delay in response to a request from D.C. Council member Sharon Ambrose (D-Ward 6), who argued that the city should first decide on guidelines for competition in electric power markets.
The D.C.-based utility has already won tentative agreement for its plans to sell its power plants in a settlement in Maryland and had hoped to win relatively quick approval for the sale in the District. Pepco officials say that the sale is critical for the company's survival in the rapidly consolidating utility industry and that the company hopes to benefit by selling its power plants early while prices are at a premium.
"There is a strong seller's market for electricity-generation assets," Pepco Chairman John M. Derrick Jr. said at a D.C. Council hearing Monday. "But this market will weaken over time as the most aggressive bidders obtain the assets they need in earlier auctions," he said.
Derrick asked the council to allow the regulatory hearings to go forward while the council debates the broader issues of changing a monopoly market into a competitive one and said that it would eliminate two D.C. plants from those it proposes to sell.
Pepco officials began contacting members of Congress on Wednesday, expressing concern about the delay in regulatory hearings. That prompted Ambrose to warn that any attempt to interfere with the city's plans to consider deregulation legislation through the congressional appropriations process "would be a serious violation of home-rule authority."
Late yesterday, however, a spokesman for Del. Eleanor Holmes Norton (D-D.C.) said that though there had been concerns about a possible Pepco item in the D.C. appropriations bill, "we do not believe that Pepco will press such a request or that the committee will entertain such a request."
The chain of events started last month when Ambrose wrote Public Service Commission head Marlene L. Johnson, urging the regulatory body to delay its scheduled hearing. Under the proposed schedule, she wrote, "the Commission appears determined to, quite inappropriately, dispose of Pepco's divestiture application before the council has had the opportunity to weigh in" on the broader issue of deregulation.
Ambrose said yesterday that her concerns had been echoed by consumer and environmental advocates. "While Pepco would like me and most other people to understand that the District has to move forward very quickly, I'm not entirely sure that is the be-all and end-all, because Maryland has some more things to do, too," she said.
In Maryland, Pepco and other parties -- including the Office of the People's Counsel, which represents consumers in regulatory proceedings -- reached an agreement earlier this year that would freeze electric power rates for three years and would allow for the power plants' sale. But the sales also require prior passage of legislation in Maryland, final approval by Maryland regulators and approval by D.C. regulators.
Maryland Public Service Commission Chairman Glenn Ivey said yesterday that final hearings are planned for Sept. 7. "There's certainly the argument that it makes sense to try and sell the generating assets earlier rather than later because the market for them seems to be pretty good right now -- and the longer you wait, the less good it may be."
Traditional utility companies across the country have begun auctioning off their power plants. In some cases it's because laws deregulating the industry in their states required them to. In others it's a strategic choice, as in the case of Pepco.
The utility industry, once dominated by geographic monopolies that produced, transmitted and marketed power, is breaking into segments. Power manufacturing is a high-risk, low-margin commodity business that many analysts expect to be dominated by a handful of very large players.
By selling its plants, Pepco would concentrate on the lower-risk business of power distribution and retail sales of electricity and other products.
Ambrose has introduced a bill that would restructure the electric utility industry in the District. Among her concerns, she had said, is ensuring service to the lowest-income customers and establishing a charge on all electric bills that would be used to establish a trust fund to pay for that service.
Pepco Vice President and General Counsel William T. Torgerson said that the company's concern is that working through a broader restructuring bill might take longer than until the end of the year. "It is extremely proper for her to want to make the political decisions on restructuring," he said. But he said that Pepco's proposal to sell its power plants doesn't require restructuring legislation in the District and that it was made before Ambrose introduced her bill.
CAPTION: D.C. Council member Sharon Ambrose argues that the city should decide on guidelines for electric power markets before a hearing on Pepco's plan.