Pocketbook issues, like all others, tend to split along political lines.
Meeting on June 12, Sen. Frank Murkowski (R-Alaska) and members of the Senate Energy and Natural Resources Committee focused for the first time on what customers really think about choosing their own energy vendor.
Nevertheless, despite the shift toward pocketbook issues, and away from so-called "inside-the-Beltway" concerns, the testimony came largely from organized consumer groups, and it appeared split down political lines: urban vs. rural, private vs. public, business vs. residential.
Jurisdictional topics came into play (em such as whether restructuring should fall under the federal or state governments (em but as committee member Sen. Dale Bumpers (D-Ark.) warned, speaking to those who have opposed a federal mandate, "We're past that point."
Customer Aggregation: Urban vs. Rural
Customer aggregation rose high on the priority list of several participants, including G.A. "Chip" Julin, president of the Building Owners and Managers Association International and chair of Morlin Management Corp.
The commercial real estate industry in the U.S. spends more than $20 billion annually on electricity, Julin said. One-third of a typical office building's operating expenses go to electricity. With 85 percent of office buildings owned by small businesses, he said, even a modest rate reduction of 10 percent would "significantly impact the bottom line [and] improve America's competitiveness," Julin said.
"That's why BOMA International has placed utility deregulation as the number one issue on commercial real estate's advocacy agenda for the 105th Congress."
"I can see the value of aggregation in cities, but how good will it be for 50 customers 50 miles apart?" asked Sen. Craig Thomas (R-Wyo.). "We're not sure aggregation will work universally, but it should be available universally," responded Julin.
Carol Everman, speaking for the National Grange, which represents 300,000 rural members, came down squarely against federally mandated retail wheeling. "Large wholesale power brokers have argued that they cannot deal with regulations that differ from state to state. They should try harder. Tax structures, land-use regulations and labor laws make each state unique. Indeed, every aspect of doing business differs from state to state. ... It is our hope," she continued, "that we could support some type of state-developed pattern or model for national retail wheeling legislation, but at this time there is no proposal we can support."
Local Finances: Public vs. Private
Joe Brooks, a member of the city council of Richmond, Va., appeared on behalf of the National League of Cities to "sound the alarm" for public power issues. He noted that for municipalities, deregulation could threaten preemption of local franchising, zoning and taxing authority. He urged Congress to "act soon to address the private use issue, [or] the unintended consequences would be that for millions of constituents ... the outcome of deregulation would be higher, not lower, prices."
Under current federal tax laws, Brooks explained, if 10 percent of a municipal utility's electricity, or $15 million worth, is sold outside its service area, then the municipality's bonds are no longer tax-exempt. Neither of the two options available to a muni system (em replacing existing debt with taxable debt or not competing outside their service area (em serves the public interest, Brooks said.
The committee was particularly interested in the testimony of David Fletcher, chair of the Bristol (Va.) Utilities Board. Bristol has decided not to renew its purchased power contract with the Tennessee Valley Authority. On January 1, Bristol will obtain wholesale power from Cinergy Corp. (See "Public Power in a Competitive Electricity Market," PUBLIC UTILITIES FORTNIGHTLY, July 1, p. 28.)
TVA is still trying to "pirate" Bristol's industrial customers, Fletcher told the committee, by offering to sell them firm power at 2 percent below any rate Bristol might offer. This behavior, Fletcher said, "could be motivated only by a desire to harass and penalize" the city and to discourage other TVA distributors from going to the marketplace for cheaper power. The TVA reportedly views it differently. Chair Craven Crowell told The Wall Street Journal, "They [Bristol, Va.] can leave, but they can't take our territory with them." To which Fletcher replies, "We consider Bristol's service area to be Bristol's territory (em not TVA's."
In addition, Fletcher said, TVA now is asking Bristol for $54 million in stranded costs "up-front," although there are no such provisions in their contract and no other wholesale customers are being asked to pay such costs. TVA's behavior, Fletcher said, "is very monopolistic and paternalistic."
Affordability: Business vs. Residential
Residential concerns were voiced by representatives of the American Association of Retired Persons, the National Grange and the Electric Consumers Alliance.
John McManus, a member of AARP's National Legislative Council, believes that individual states will be better able to provide a "guarantee of affordability" to residential consumers. "They're closer to the people," he said. He also voiced the fear that "while deregulation is almost always beneficial to big businesses, its impact on small consumers is less certain."
One of AARP's top priorities is that any federal legislation should "ensure that residential customers are among the first to benefit from competition." Industrial customers already have electricity prices that are half residential consumer rates, he said.
Chip Julin added that while commercial accounts do not get the same breaks that industrial customers do, aggregation services should help level the playing field for all classes, including residential customers.
Vann E. Prater, chair of the Electricity Consumers Resource Council and director for electricity affairs and procurement for Amoco Corp., represented industrial customers. ELCON supports a federal date-certain that will provide customer choice to all classes simultaneously. He also noted that stranded costs "can be an indication of surplus or obsolescent production capacity. Such assets are a drain on the economy." ELCON also supports reforming PUHCA and PURPA. As for the debate regarding public power issues, "While important, [it] should not delay the benefits of choice."
Electric Consumers' Alliance Executive Director Robert K. Johnson was blunt: "Consumers will win, and consumers will lose, as the electric industry is restructured." His written testimony included a 64-page study criticizing a report by the Citizens for a Sound Economy Foundation, entitled "Customer Choice, Consumer Value," which claims that competition would lead to price decreases of 40 percent and more.
According to an ECA poll conducted in April, Johnson noted, 55 percent of electric consumers are "unaware of efforts at the state or national level to restructure the industry." One key to making competition happen, then, is a partnership between Congress and the states. While many issues raised by restructuring are local in nature, Johnson said, some sort of federally imposed mandate (em on PURPA and PUHCA reform and clarification of states' authority (em "may have a place down the road." t
Lori M. Rodgers is an associate editor of PUBLIC UTILITIES FORTNIGHTLY and editor of PUR's Energy Buyers Advisory.
Reliability: A Federal Issue?
Though it has performed well for regulated electric utilities as a voluntary, self-help organization, the North American Electric Reliability Council (em NERC, for short (em faces an uncertain future in a competitive electric industry.Should Congress impose a governing structure on NERC, with federal agency oversight?
At the hearing, Sen. Murkowski assured the witnesses: "I will not allow reliability to become a back-door means to preempt state control over electric utilities and federalize the day-to-day operations of the electric industry,"
David Nevius, vice president of NERC, said he was "gratified" to hear support for reliability from Sen. Murkowski, since, said Nevius, "reliability is an issue I live with every day."
Officially, NERC has no position on retail competition. Nevertheless, as Nevius explained, "The bottom line is that we can and will ensure reliability." To that end, he said, the council is committed to the process of reshaping NERC to keep pace with the changes taking place in the electricity industry.
In May, NERC's board of trustees (em primarily composed of electric industry executives (em agreed to add two customer representatives to the board and major committees. NERC also has asked experts from inside and outside the industry to perform a study to recommend a new structure for NERC that could be put in place in "a timely fashion." That study, scheduled to begin last month, should be completed and presented to the NERC board of trustees next year, in January.
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