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Eight Years Later ... 'Deregulation Failed'

January 21, 2007
By CHRISTOPHER KEATING, Capitol Bureau Chief

It was December 1996, and the elegant Vermont hotel was decorated in grand fashion for Christmas, and for some high-profile government leaders.

Connecticut Gov. John G. Rowland was there at the Equinox Hotel to meet with Vermont Gov. Howard Dean, other New England governors and more than 100 utility regulators, lobbyists and government leaders.

The topic was electricity deregulation, a complicated concept still in its infancy. A roundtable discussion featured speeches about its pros and cons. The most aggressive proponent, listed among the "special guests," urged the governors to move as quickly as possible into the bold new world of electricity competition.

"Every day we delay [deregulation], we're costing consumers a lot of money," he said. "It can be done quickly. The key is to get legislation done fast."

His name?

Jeffrey Skilling of Enron.

Ten years ago, Skilling was unknown outside the small, insular world of utility insiders and Enron corporate headquarters in Houston. Today, the former chief executive officer of Enron sits in a Minnesota prison cell after being found guilty of 19 counts of securities fraud, conspiracy, lying to auditors and insider trading in one of the biggest corporate scandals in American history.

Neither Rowland nor Dean recall that Skilling was there.

But Skilling's words that day in Vermont were emblematic of the euphoria sweeping the country about deregulation.

What a difference a decade makes.

"Deregulation didn't work," says Rep. James Amann, D-Milford, Connecticut House speaker, who voted for it then. "Deregulation failed."

Shocking Rates

Regret about deregulation, while not unanimous, is widespread among members of the Connecticut General Assembly.

And it's hard to blame them.

Although deregulation kept prices down temporarily, rates for residential customers have exploded - jumping 22 percent last year for Connecticut Light & Power customers and an additional 7.7 percent this year.

United Illuminating customers in the New Haven and Bridgeport areas will see their rates soar this summer by 50 percent.

The roots of today's increases stretch back to April 1998, when the deregulation bill was passed by votes of 126-17 in the state House of Representatives and 27-7 in the Senate. When the smoke cleared and the heavy lobbying stopped, all six of this year's top state legislators had voted for deregulation: Amann; Christopher Donovan, D-Meriden, House majority leader; Lawrence Cafero, R-Norwalk, House GOP leader; Donald Williams, D-Brooklyn, Senate president pro tem; Martin Looney, D-New Haven, Senate majority leader; and Louis DeLuca, R-Woodbury, Senate GOP leader. At that time, all were younger lawmakers, of course, moving up the legislative ladder.

Now, the same lawmakers are trying to solve the problem of skyrocketing electric rates. Facing one of the year's most important issues, legislators have been tracking the issue on a daily basis. The House could vote on the matter in the coming weeks.

Cafero now says candidly that they blew it. "Probably six out of the 187 legislators understood it at the time because it is incredibly complex," Cafero said. "If somebody says, `No, we didn't screw up,' then I don't know what world they're living in. We did."

Amann admits that deregulation has not worked well, but he said the multiple causes were a series of unforeseen problems and a lack of a national energy policy that have exacerbated the matter in Connecticut. No one, he said, could have foreseen the war in oil-rich Iraq, the huge increase in energy demand from China and India and the devastation from Hurricane Katrina, which knocked out key refineries along the Gulf Coast.

One of the few who voted against the 1998 bill - state Sen. Edith Prague, a liberal Democrat from Columbia - said she is still upset about the lobbying by the state's largest business lobby - the Connecticut Business and Industry Association - which pushed for deregulation.

"That was the worst thing that ever happened to this state," Prague said. "CBIA ran around pushing that legislation, saying if we didn't deregulate, businesses would move out of the state.

"I really resent the fact that CBIA threatened legislators that jobs would leave the state. They were flat-out wrong. That's the bill of goods we were sold."

Despite pressure from other legislators, Prague said she had fundamental, philosophical disagreements about allowing electricity production to be handed over to free-market power generators in a bill that severely weakened the ability of state regulators to hold down prices.

"It was a bad idea from the get-go," Prague said. "It's too important to let the marketplace control it. [Electricity] is a necessity."

For Some, No Regrets

But Joseph Brennan, the Connecticut Business and Industry Association's longtime chief lobbyist at the state Capitol, said the energy world is so complex that it is a premature oversimplification to say deregulation is already a failure. Businesses have fared better than homeowners as large industrial users have more leverage to gain a better price than the average residential customer using a relatively small amount of electricity in a single-family home.

One of the problems, Brennan said, is that deregulation was supposed to lead to the construction of more power plants in Connecticut and widespread improvements in transmission lines. But building any kind of energy facility leads to ferocious opposition and often fails. Look at Broadwater, the liquefied natural gas plant project proposed in Long Island Sound, he said.

"Do we have regrets [deregulation] was passed? No," Brennan said. "Did it work exactly the way everybody had it mapped out? No. ... For Sen. Prague or anyone else to just say we were sold a bill of goods is a very simplistic view. She just totally ignores all these other factors."

The business lobbying group released a study in 1998 that said Connecticut could lose as many as 19,000 manufacturing jobs if the legislature failed to pass deregulation and the state found itself unable to compete on electricity rates. But Brennan denied that the association had threatened any legislators.

"Clearly, we don't threaten," Brennan said. "We're not in the business of threatening."

While the association was talking about potential job losses in the 1990s, Enron lobbyists were spreading the word at conferences about the rush toward deregulation. Rowland declined to comment for this story, indicating that he could not remember the details of events of a decade ago.

Donovan, the current majority leader who gained a reputation as one of the legislature's leading liberals, said the 1998 vote came at a time of intense lobbying. But he said he was one of only about 25 legislators who voted in 2003 to extend the so-called "standard offer" that would have kept electricity prices down. That effort was an unsuccessful attempt to prevent the price spikes that have occurred recently.

"I had my chamber of commerce screaming at us to do something about it," Donovan said of the 1998 vote. "People who voted for it thought we were doing the right thing."

Going forward, most legislators admit that they cannot solve the problem overnight. Some are hoping that increased competition, including a plan by New York-based Con Edison to enter the Connecticut market, might ultimately bring down prices. Some legislators and lobbyists said they do not expect a vote in the short term because the House and Senate have not yet agreed on a final bill.