[BETA] Fortnightly

The debate today in many state capitals is whether electric restructuring will help or hurt the residential and small commercial customer.

Proponents of wholesale and retail wheeling foresee a positive result. They claim that residential and small commercial electric consumers stand to gain as much from competition in electric generation as do large industrial customers with high load factors. Last year, Charles Studness held that residential consumers might see rate cuts as deep as 30 to 40 percent in many areas after retail wheeling (PUBLIC UTILITIES FORTNIGHTLY, Nov. 1, 1994, p. 37). He finds no logical reason for great disparities between electric rates within relatively small geographical areas. Others predict that marketers will aggregate residential load and exploit the new-found buying power to win large discounts. In fact, one can find ample evidence in the natural gas industry that aggregating loads can produce savings for small consumers.

Yet many groups (em consumer advocates, and environmentalists (em claim that retail wheeling will harm the small customer. They assume that residential and small commercial customers will be forced to remain tied to the rate base, while the seemingly more attractive industrials flee to competitive markets. Opponents of retail competition claim that small consumers lack enough market clout to reap benefits from open markets and will instead be forced to absorb all the high costs abandoned by the large industrials.

While the debate may continue, the outcome is not in doubt. Small customers are aggregating load even now, as shown by this real-life case from rural North Carolina.

Rural Origins

In the spring of 1995, four small towns in eastern North Carolina joined forces to explore opportunities in wholesale power markets made available by the Energy Policy Act of 1992. These four towns (em Stantonsburg, Lucama, Black Creek, and Fountain (em all lie in an agricultural area with relatively low population densities. The peak load for each town varies from 1.3 to 3.8 megawatts (Mw); their combined load totals less than 11 Mw. The associated combined load factor is slightly less than 60 percent (em a clear sign of largely residential and small commercial load. Of the four towns, only one can boast of any substantial commercial load (em and that load reaches only 300 Kw at peak.

Taken individually, none of these towns could likely offer enough load to attract interest from power suppliers, particularly given their relatively low load factors. Their question was: Could the towns attract interest from potential power suppliers by aggregating their loads?

When this story began in the spring of 1995, each town was buying its electric supply from another larger municipal electric utility in North Carolina. Stantonsburg, Lucama, and Black Creek purchased their wholesale power from Wilson, NC. The Town of Fountain was buying its power wholesale from Farmville, NC. (Both Wilson and Farmville are members of the North Carolina Eastern Municipal Power Agency, an organization that owns an interest in several generating plants.)

The buyer-seller relationship differed in each case. For the first three towns, the relationship was somewhat undefined since there were no contracts in force