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Critics: Energy Law Leaves Accounting Loopholes

STEVE INSKEEP, host:

The price of oil hit a new high yesterday, even as President Bush signed an energy bill. The president acknowledged the measure will not solve the nation's energy challenges overnight. He says it should make the electricity grid more reliable at a time when many Americans are running air conditioners full blast.

President GEORGE W. BUSH: We have a modern interstate grid for our phone lines and our highways. With this bill, America can start building a modern, 21st-century electricity grid as well.

INSKEEP: The bill signing comes almost exactly two years after a major power blackout darkened much of the Midwest and Northeast. NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

Authorities say the August 2003 blackout that affected some 50 million people was not the result of hot weather or an overtaxed electric system. Instead, they blame grid operators who didn't follow the rules. Up until now, those reliability rules have been voluntary, enforced only by a sort of honor code among utilities. Out of the bill signed by President Bush yesterday, the rules will have new teeth.

Pres. BUSH: Most of you probably consider it mandatory that the lights come on when you flip a switch. Now the utility companies will have to consider it mandatory as well.

HORSLEY: The bill is also designed to encourage investment in the power grid. It provides increased financial rewards for those who build transmission lines and, in some cases, allows federal regulators to overrule local opposition. Jim Owen, who's with the utility trade group the Edison Electric Institute, says while that probably won't mean an immediate construction boom, it should eventually bring more money into the somewhat neglected electric transmission business.

Mr. JIM OWEN (Edison Electric Institute): Certainly, by five or 10 years, I think we will have begun to see new transmission projects developing, making sure that we can get power from where it's generated to where it's needed, into homes and into factories and into businesses.

HORSLEY: The bill also repeals a Depression-era law that had prohibited big financial companies and others from investing in the utility business. Supporters say that will provide new resources for the industry. But critics, like Tyson Slocum of Public Citizen, worry it will be harder to follow the money, and that could open the door to Enron-style accounting games.

Mr. TYSON SLOCUM (Public Citizen): This is exactly what happened in the 1920s and the 1930s, and, unfortunately, we're doomed to repeat history because Congress can't seem to understand it.

HORSLEY: Eventually, the bill could lead to changes in the way customers pay for electricity, by encouraging the use of smart meters and time-sensitive pricing. San Diego Gas & Electric is already pursuing a plan to give smart meters to its residential customers. Spokesman Ed Van Herik says the meters will tell customers not only how much power they used, but also when they use it.

Mr. ED VAN HERIK (San Diego Gas and Electric): Perhaps someone might find that they're using an inordinate amount of electricity between 3 and 5, before they get home but after their children do.

HORSLEY: Once smart meters are in place, a utility might offer variable prices, the way many cell phone companies do, charging more on hot summer afternoons, when electricity supplies are stretched thin, and less on nights and weekends, when there's plenty of power to spare.

Mr. VAN HERIK: If customers find themselves required to pay the actual costs of the electricity they use when they use it, they will have a financial incentive to shift their usage to hours where the costs are less. So instead of washing dishes or clothes in midafternoon, they may opt to wash them after 7 PM.

HORSLEY: By shifting demand away from peak periods, utilities and customers could save money and delay the need for new power plants. So far, less than half the states have adopted any form of time-sensitive electricity pricing. The energy bill calls for all states to at least consider the idea within the next 18 months. Scott Horsley, NPR News, San Diego. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.