Last Spring I heard superintendent William "Billy" Ray tell how the folks down home at his Glasgow, KY, municipal utility took a flier on the information superhighway. They gambled and won by constructing a new utility-owned cable television system to offer competitive TV service to their municipal electric customers. It's a good story.
Ray, who has testified before Congress from soup to nuts on telecommunications policy, loves to tell his audience how the Glasgow utility management got permission from the town council, conducted extensive planning sessions, and only then picked a target subscription price they thought was high enough to make money but low enough to compete with the entrenched cable company. So guess how much the local cable company cut its rates when faced with Glasgow's competing service? As Ray tells it, Glasgow had to learn the hard way how to make its new business go when the competitive conditions changed drastically overnight.
But Ray discovered some other things too, like what customers want. (Glasgow's most popular cable shows and info services almost all have to do with local community activities.) Moreover, Glasgow doesn't have to fear retail wheeling. Faced with a competitive threat from another electric utility, Ray just winks (but he's deadly serious): "I'll just tell my electric customers, if they stick with us we'll throw in free HBO. No charge."
And you still think electric distribution is a natural monopoly?
Meters R Us
"The current 'municipalization' phenomenon is more a manifestation of competition than a contest between public and private power."
That view comes from Coopers & Lybrand, which a couple of months ago released its 1995 Electric Municipalization Review (em a compendium of facts, figures, law, and analysis on forming municipal electric distribution systems to take advantage of the open-access transmission opportunities in the Energy Policy Act of 1992. The C&L study runs down a number of case studies: Albuquerque and Las Cruces, NM; Brook Park and Toledo, OH; Broken Bow, OK; Bennington, VT; Westbrook and Jay, ME; Romero, MI; and Culver City, CA. But the most interesting discussion centers on the City of Falls Church, VA (two miles west of my childhood home), and how, according to C&L, that fight has become a test case on attempts by the Federal Energy Regulatory Commission (FERC) in various contexts to delineate the exact boundary (if it even exists) that separates electric transmission from distribution.
Several months ago I quoted John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), talking about a strategy known as "municipalization lite" (em about how a city might install some meters on some local homes and businesses, claim to operate a city-owned "distribution system," and then seek out alternative wholesale power supplies as a "municipal utility." That's happening now in Falls Church.
According to C&L, which conducted telephone conversations with Anderson and Donald Allen (legal counsel for Falls Church), the city is testing to see just how much investment the FERC will require before it is willing to accept the city's claim that it operates a bona fide electric utility. C&L quotes Anderson as predicting that if the FERC rejects the idea that a meter is enough to make a city a utility, then Falls Church will invest in some "transformers and line drops" and submit a new application on municipalization. At some point in the process, the FERC will have to acquiesce.
Of course, the FERC wants to mark a bright line between transmission and distribution to accommodate its proposed policy on stranded investment cost recovery. In fact, its recent notice of proposed rulemaking asserts exclusive jurisdiction over all those utility facilities used to deliver electric energy in interstate commerce to a wholesale purchaser,
regardless of whether one refers to such plant as transmission or distribution. But that bright line (em drawn broadly to expand federal jurisdiction (em is seen in the C&L study as favoring municipalizations. The study cites Allen as saying that the FERC's view will give Falls Church "'more space' to pursue a 'muni lite' approach."
The seventies were marked by the great "rust belt" migration, when steelworkers from the Northeast and Midwest moved South and West, looking for jobs. Will electric rates play a role in future relocations?
In their recent study, Free Markets Emerge in the Electric Power Industry, published by Primary Research, New York, NY (212-397-5055), James Moses and Joseph R. Flicek argue that state-by-state population trends already show some correlation with electric rates. Moses and Flicek claim that, with the notable exception of California, the states with the lowest electricity cost have witnessed the higher rates of population growth, as measured between 1993 and 1994 (see box).
Moses and Flicek might be stretching things a bit. Several other states besides California seem to fight the trend: Iowa (low rates, low growth), West Virginia (low rates, low growth), Arizona (high rates, high growth). Nevertheless, it's worth remembering that electric utility restructuring is regional or even state-specific in nature. Views differ extensively from region to region, as you can see from some of the quotes the authors dug up from sources at various state utility commissions:
Hawaii. "Utilities are not really downsizing."
Kansas. "There are no special deals due to competition at this time."
Missouri. "We are at ringside . . . . We are not pro or con."
North Dakota. "It [unbundling or deregulation] is really not needed."
The Moses/Flicek report analyzes rates, regulatory trends, and utility strategies for each state and the 10 Canadian provinces. The study even lists the names and telephone numbers of consumer and industrial electric-rate lobbying organizations that are active in each state.
So you can call them before they call you.
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