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Special Report

Fortnightly Magazine - September 1 1997

Midwest panel fears service decline, sees small companies as speed bumps on road to competition.

"Mergers and restructuring" could have described the panel, but "Four Weddings and a Funeral" gave the session the cinematic spin it demanded.

Craig A. Glazer, Ohio Public Utilities Commission chair, moderated this packed breakout session of the Mid-America Regulatory Commissioners Conference and opened with the key question: "Isn't there a certain irony that at the same time we're going toward competition, we've got more and more consolidation than we've ever had before?"

It was a question at the root of many of the MARC sessions. Telecommunications industry reps talked about the troubles of transition. Power companies dissected the uncertainties ahead. Water utilities mulled over the possibilities of having an electric parent. Many observed that the industry overlap was growing less defined. Even Sprint and Time Warner have electric utility strategies, noted Steven E. Collier of CHG Strategy Group.

As panelists breezed in or took the podium, interestingly enough, they complained privately or publicly about the airline that flew them to Des Moines, Iowa for the June 16-17 conference. Few mentioned the lessons of airline deregulation as they later promoted energy consolidation and restructuring.

They'll Need To Be Big

One panelist said companies will have to be big because they will lose bulk when unregulated subsidiaries provide their wires and ancillary services. Said Edward J. Tirello Jr., senior utilities analyst at NatWest Securities Corp.: "We think the smallest of the new competitors will probably be ... somewhere between two and five million customers ... and the biggest will be 10 to 20 million customers."

"The more weddings we have, the closer we get to a funeral," said Johannes M. Bauer, director of Michigan State University's Institute of Public Utilities. He cited a recent article in PUBLIC UTILITIES

FORTNIGHTLY (June 15, 1997, p. 26) that measured operational efficiency to determine that the largest utilities are most efficient; the smaller ones less so.

He disagreed with co-panelist Tirello on company size, if only because forecasts have been wrong before. "We need to, very carefully, look at the different segments of things because the economic dynamics of generation, transmission, distribution, the commodity market and the energy services market are quite different," he said.

Mary S. Lovell, a senior v.p. at Atmos Energy Corp., insisted industry consolidation is market-driven. Atmos started with 300,000 customers in West Texas and now has 1 million customers in 13 states. Lovell said the company was getting cues from customers.

"My standards as a consumer aren't based any longer on - if they were to begin with - my phone company or my electric company. They're based on Walt Disney or Land's End or Federal Express."

Customers vote with their pocketbooks, Lovell noted, and accordingly, Atmos would be as efficient as it could be.

Local vs. Global Companies

But if utilities go to an "international structure," Glazer asked, and the "hometown utility" becomes obsolete, will anything be lost?

Dan Holub, general counsel for the International Brotherhood of Electrical Workers Local 204, offered his take on that question.