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That Giant Sucking Sound? Rural Distribution Territories and Utility Earnings

Fortnightly Magazine - November 15 2001

with an eye towards avoiding problems caused by the enormous size differences between the companies in the database. Besides a model to predict net plant, individual models were built to predict distribution O&M costs, combined customer accounting, service, and sales costs, and administration and general expenses. Every model has an adjusted R-squared statistic exceeding 94 percent. Important independent variables include the size of the service territory, the number of residential and small commercial customers in a given region, and the intensity of energy consumption by the utilities' large industrial customers. To test how well the model incorporates data from the cooperative and public utility worlds; predicted and actual expenses were plotted on a scatter chart. The residuals appear random and there seem to be little, if any, difference between investor-owned utilities and cooperatives in the model's performance. () The ability of these models to explain costs in both types of organizations was key to our analysis.

Four utilities were then selected for study in our analysis: Florida Power, Commonwealth Edison, Carolina Power & Light, and Entergy Arkansas. The goal was to select utilities with large customer bases and service territory that extends over both metropolitan and rural areas. Additionally, we were interested in studying utilities from different geographic regions and whose service areas overlap with electric cooperatives.

The population of each utility's service area was studied intensely using data available from the 2000 census. Household numbers were compared to customer reports for the investor-owned utilities, cooperatives, and municipal utilities within each area. From this analysis, customers were allocated to each service provider on a county and/or township basis. The utilities' service territories were than broken down into "urban" and "rural" regions, usually along county or township lines. Each utility was divided into a number of regions, depending upon the service territory's geographical complexity. For example, Carolina Power and Light was broken into three primary rural areas and multiple urban centers, while Florida Power was split between one urban area and one rural area.

Four IOUs: Urban and Rural Characteristics

Florida Power

Florida Power's service territory is characterized by a heavily populated southern region and a sparsely populated northern region. The differences between the north and south are magnified since the two largest cities in the north (Gainesville and Tallahassee) are served by municipal utilities. The utility was split nearly in half for our study - the northern section relabeled "Florida Power Rural" and the southern section "Florida Power Urban." "Florida Rural" comprises slightly less than half of Florida Power's service territory but contains only 7 percent of the utility's 1.2 million residential customers.

Commonwealth Edison

Commonwealth Edison, unlike the other utilities this study analyzed, does not have a great deal of overlap with electric cooperatives. However, it does have a large section of service territory that fits the "Rural" descriptor, and there are cooperatives in the vicinity. Commonwealth Edison's distribution network is, of course, focused in and around Chicago. The territory west and southwest of the metropolitan area is the focus of our research. This area, "ComEd Rural", encompasses 60 percent of