APPA Director Alan Richardson will fight

toe-to-toe with well-heeled

adversaries. If he were a boxer, his name might be Alan "The Right" Richardson.

The executive director of the American Public Power Association (APPA) always toes the canvas, swinging for equity for his 1,750 members, shadowing its "heavyweight" adversaries, investor-owned electric utilities (IOUs).

When the IOUs align on one issue (em on mergers or competitive advantages, say (em APPA is there to counter, without fail. It has the reports, the filings at the Federal Energy Regulatory Commission (FERC), and the press releases to build its case. APPA has to be among the most aggressive industry groups trying to ensure its place in the restructured electric market. It knows, too, when to step aside and let the IOUs duke it out among themselves.

To some extent, publicly owned power systems might be considered "lightweights." In terms of electric revenue sales to ultimate customers, publicly owned systems make up only 12.7 percent of the market; their installed capacity is 11.7 percent (according to Energy Information Administration Forms EIA-860 and EIA-861). Moreover, just 30 percent of public power systems own generating facilities. About 600 of the 2,000 public-power systems buy electric from the federal Power Marketing Administrations.

Meeting Richardson, you learn why his association does so well in or out of the ring. Sit next to him at an a industry banquet, and you'd describe him as "a nice guy." But hammer him in his sunny corner office with a pointed question (he doesn't like corners), and he'll brush down his reading glasses.

"Sham transaction," for instance, is a phrase that will get Richardson's glasses moving. Palm Springs, Falls Church, and now the Modesto and Turlock Irrigation Districts are attracting publicity for their relentless pursuit of non-IOU power in efforts that some critics call "sham transactions." Of these proposals, Richardson says, "If that's the course the community wants to pursue, I don't have a problem with that."

But where's the borderline between innovative solutions and unfair tactics?

"What's unfair?" asks Richardson. "Competition is competition. Is there something 'unfair' about a municipal utility trying to strike a deal with a customer? And something 'fair' about Detroit Edison or Consumers Power striking deals with all of GM's plants, regardless of where they are served? Or moving into Traverse City and arranging special deals with customers of existing municipal utilities? I'm saying it's competition, the effects of competition. The rules are still being made."

Indeed, the rules are still being made (em at both the state and federal level. Only five days after the debut of Orders 888 and 889, Richardson both praised and warned the FERC. The orders open up transmission access to competition, clarify state and federal jurisdiction, but prompt other questions. They don't, for instance, appear to clarify the issue of sham transactions.

"They [the FERC] have made great strides, but there are things that they need to be cautious about as we move forward," Richardson says. "Things that they need to look at very, very carefully to make sure that what they want to have (em a vigorous, competitive bulk-power market (em is sustainable."

One of the APPA's greatest concerns is merger policy, which awaits the FERC's separate rule (RM96-6-000). APPA has filed a petition with the FERC, which has issued a notice of inquiry, and hopes a rulemaking proceeding will follow. Says Richardson: "[The FERC is] likely to move forward, hopefully as aggressively on that front as they have on their open access."

Along with his members, Richardson voices concern that mergers will concentrate political and economic power in the hands of a few IOUs. "The corporate structure is beginning to look an awful lot like it did back in the 1920s," he says. "I'm not saying that same kind of stock manipulation can occur. I'm saying human nature hasn't changed."

One way of ensuring fair competition in the new open-access transmission market are the real-time information networks the FERC has ordered under Order 889, authorizing the so-called OASIS program ("open access same-time information systems").

"If you're really going to have vigorous competition in the bulk-power market and you accept the fact that transmission is a monopoly, then all the participants that need to use that transmission

network have to have the same information at the same time," Richardson says.

Also leveling the playing field, from where APPA is sitting, are Order 888's "safe harbor" provisions. The provisions allow tax-exempt funded projects to participate in open-market wholesale wheeling without penalty. (An IRS ruling will further define the limits.)

"I think the Commission started out in a skeptical position," Richardson says. "Thinking that perhaps this was an artificial barrier that some public agencies were throwing up as a way of taking advantage of the facilities of others, while holding back on the use of their own facilities."

APPA hopes to even up the competitive match through the FERC's support of independent system operators (ISOs).

Richardson remains wary of the market power inherent in vertically integrated utilities that comes from the ability to control transmission resources to favor generation. "I don't think [the FERC] has the authority under existing law to order corporate unbundling," he explains. "Functional unbundling has its problems, and they [the FERC] have recognized that fact. ISO is the concept that a lot of people have seized on as the middle ground. ... They're not mandating it, but they're certainly encouraging it."

"As one commissioner said, the emphasis has to be on the 'I' for these entities to work," he adds. "The operator really does have to be independent of those who own transmission."

Stranded-cost recovery was one of the issues the APPA found adequately addressed in Order 888. Richardson was pleased to see that the final rule contains a provision that allows customers, meaning municipal wholesale customers, to open their contracts to amend them and gain greater freedom to "work" the market. Part of the equation would include what they propose as reasonable compensation for stranded investment. Power providers also will be allowed to amend their contracts.

As concerns retail stranded costs, the APPA agrees with dissenting FERC commissioners James J. Hoecker and William L. Massey that such issues should be left to state public utility commissions. "They saw no reason to be so intrusive in state's rights and wanted to let the states handle those decisions first. And if states couldn't, maybe the Commission could be a backstop," Richardson says. Nevertheless, a trip to court might be needed to determine the limits. "When you have dissenting opinions, they seem to help you fashion arguments that could help you advance to the appellate level," the APPA official says.

All state and federal rulemakings reveal the unusual relationships public power utilities have with IOUs: They're competitors, but also customers.

The essence of public power, however, is very different from that of a corporate enterprise. Richardson says public power is locally owned, community directed, and not for profit. Public power also comes in many forms. It could exist to serve a large city, like Los Angeles, or as a consortium of small systems that both generate and transmit power. Then there are the several hundred public-power utilities that only offer distribution services.

IOUs have been acquiring public-power systems for years, but no major systems have changed hands recently. And although efforts to municipalize are on the rise, Standard & Poor's believes Order 888 will likely slow the momentum.

Ironically, one of the most recent takeovers in the news has been the proposed absorption of a private utility by a public agency. Long Island Lighting Co. (LILCO), whose rates are twice the national average, has been negotiating with a state agency created to take it over, the Long Island Power Authority. An outcome was expected by the end of June.

Richardson says a LILCO takeover doesn't exactly jive with his picture of public power.

"I don't like to think that public agencies, state governments, sit out there only to rescue private corporations," he says. "I don't think that's appropriate." It is appropriate, however, he argues, as a political choice New York officials have to make in the best interests of their state and its citizens.

While federal and state mandates may be redefining the utility industry, in many ways public power is ahead of the restructuring game, at least at the retail level.

Nearly every state is considering tests of retail competition, but municipalities have been experimenting for some time, according to Richardson.

For the past two years, the University of Missouri has wheeled electricity and natural gas through the City of Columbia Water & Light Department. Clark Public Utilities in Vancouver, WA, has a retail wheeling tariff for customers. Clark has also told commercial and industrial customers that it will "work" the market for them, or they can work the market.

There are even cases of house-to-house competition, Richardson says. Cleveland Public Power and Cleveland Electric Illuminating, an IOU, regularly switch meters in response to customer choice. In the City of Lubbock, TX, a cooperative, a muni, and an IOU do the same. The city council has ordered the municipal utility not to underprice the IOU; competition proceeds entirely on service.

State-level resolution is the answer to most of the issues that arise involving publicly owned power systems, Richardson maintains. Why? States control the activities of their subordinate governments, and they offer a historical, and practical, record.

State commissioners may also prove best suited to deal with sham transactions, Richardson says, circling back to his initial topic: "Maybe what we're seeing is something that might become more common, which is municipal government stepping in and saying 'We're the logical aggregator. If the intent is to get lower rates to all consumers, then maybe it makes sense for us to be the negotiator on behalf of all the citizens within our community.'"

The natural extension of aggregation is power pools, as in Oklahoma, where the Oklahoma Municipal Power Authority and the Public Utilities Board of Brownsville, TX, propose a municipal power pool spanning four states.

Besides the benefits open access brings, many functions could be united at the 2,000 municipal

utilities nationwide (em billing,

management, maintenance fleet purchasing.

Does Richardson envision a public-power network?

"I think that's highly unlikely," he says. "They're very dispersed. They're distinct cities and towns."

OK, not now.

But anything is possible.

After all, this is Alan "The Right" Richardson talking here. t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY. Email: schuler@pur.com.

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