LDC Minimus, LDC Insipidus,
LDC Robustus? Which Would You Rather Be?
Post-Order 636 evolution depends on aggressive regulatory and legislative reform.
"Get out of...
"Anyone who assumes rural electric cooperatives will not be fully engaged in whatever system we have . . . if they assume the more competitive it becomes, the less we'll be engaged . . . they're very wrong."
(em Glenn English, CEO,
National Rural Electric
Ten terms as a U.S. Representative from Oklahoma's Sixth District taught Glenn English how to build consensus. Although his agenda and goals differ now, his mission at the National Rural Electric Cooperative Association (NRECA) shows all the signs of an election campaign.
NRECA's 900 cooperatives (em which include 60 generating and transmitting co-ops (G&Ts) (em have mixed opinions on retail wheeling and electric distribution. They expect the usual arguments from investor-owned utilities (IOUs) about their "favored" federal financing status. They plan to fight public power proponents on annexation. They anticipate more takeovers from IOUs eyeing co-ops with large, once-rural power loads that have become attractive suburbs. They recognize that their future lies with Congress: English believes universal service and deregulation conflict, and will until legislators weigh in.
It's a tough agenda. Winning consensus on leading issues won't be easy. But NRECA's CEO is up to the task. And English says co-ops are steeled to face the competitive forge, despite some small differences: "Anyone who assumes rural electric cooperatives will not be fully engaged in whatever system we have (em no matter how much regulation or deregulation (em if they assume the more competitive it becomes, the less we'll be engaged ... they're very wrong."
English took his post two years ago. Since then, he has led the development of a strategic plan aimed at NRECA member survival through "competitiveness, community, and competence." The plan attempts to reduce the risk of hostile takeovers, address municipal annexation, and support merger and acquisition efforts that "make sense." It also calls for new approaches to market-based wholesale and retail rates, and plans new ways to assess performance and to reduce regulation's impact.
NRECA's roadmap also encourages co-ops to add commercial and industrial load. Gaining industrial load would put co-ops on firmer ground and balance out retail rates. NRECA members generally have load factors of 50 percent. And retail rates in 70 percent of rural electric systems are higher than those of neighboring IOUs.
On the flip side, higher retail rates help fend off grazing IOUs seeking to expand service territories in border regions. Yet co-ops shouldn't think they're protected, as several recent cases have made clear. Sticking their heads in the sand over competition and forgoing sophisticated management practices only hurts co-ops' credit strength, says Marla Fox, utilities group director of Standard & Poor's (S&P) infrastructure group.
Fox says co-ops will need good management when open-access transmission hits and members begin to wonder "Why are we tied to a high-cost G&T when there's cheaper wholesale electric at hand?" Since co-ops are legally bound to their G&Ts and G&T stranded costs, it could become a legal debate.
Some G&T's are already making strides in lowering wholesale costs. In a recent assessment of the nine highest-rated G&Ts with combined debt over