John Anderson is jumping out of his shoes. And his socks, too. His group, the Electricity Consumers Resource Council (ELCON, where Anderson serves as executive director) may at last get its way.During a few weeks in October, a good half-dozen energy industry players (em including utilities and regulators (em came out in favor of customer choice for electric and gas service. So, when I saw Anderson at the podium in early November at a symposium on electric transmission, outlining a host of recent competitive initiatives, he seemed barely able to restrain himself. After all, during the past few years ELCON has led the push for retail wheeling, advocating free choice for customers in buying utility services.
Granted, ELCON members are a well-heeled lot. Numbering 28 at last count, they include Alcan Aluminum, Amoco, Anheuser-Busch, Bethlehem Steel, Dow Chemical, DuPont, Ford and GM, Owens-Corning Fiberglass, and Whirlpool. But Anderson has worked hard. Give him his due.
Our Greatest Fear
Everywhere you look, industry players are coming out for competition. Each one favors some new form of customer choice, be it self-generation, long-distance "extension cords," collective buying, municipalization, or plain old retail wheeling.
According to Anderson, Motorola will build a new $100-million cellular phone plant in Harvard, IL, but use a privately owned, seven-mile transmission line (Anderson calls it a long "extension cord") to buy power from Wisconsin Power & Light at 3.74›/Kwh, to bypass the 6.27› price offered by Commonwealth Edison. Whirlpool, the largest employer in Clyde, OH, has "convinced" the city to terminate service with Toledo Edison and form its own municipal utility. Frito-Lay is leaning on West Valley City, UT, to form a city utility to buy power from the Utah Associated Municipal Power System, power that Utah Power & Light has so far refused to wheel.
American Electric Power Corp. came out for retail wheeling on October 26. AEP voiced its support only one day after moves by the New York Power Authority and Equitable Resources to embrace customer choice. Central Illinois Light Co. (CILCo), which has come out against stranded-cost recovery, had announced its own Power Quest wheeling plan a few weeks earlier.
AEP proposes a regional power exchange with an independent system operator (ISO). Equitable Resources was to file its plan in November. It would apparently offer direct access for retail electric and gas for some 670 business and residential customers in the Pleasant Hills Borough of Allegheny County. NYPA envisions a single owner-operator for transmission. It finds itself (em the Power Authority (em the logical transmission owner, since it operates on a nonprofit basis and already owns the bulk of the state's high-voltage transmission network.
With Power Quest, CILCo would offer two pilot plans: 1) "Rate 33," with retail wheeling (50 Mw, total) for eight large industrial customers that each carry demands above 10 Mw; and 2) "Rate 34" for smaller customers, including residential and commercial, featuring geographic "open-access sites" (like hubs or market centers) where customers could choose their full-requirements service.
Then there's Niagara Mohawk Corp. Its PowerChoice plan, announced on October 6, would create a holding company with two subsidiaries: 1) a genco to own all plants, plus contracts with independent power producers (IPPs); and 2) a monopoly to own all transmission and distribution (T&D), plus gas properties. NiMo has threatened an emergency rate case or a Chapter 11 bankruptcy filing if PowerChoice doesn't work.
In a report issued October 11, Dan Scotto, managing director at Bear Stearns, suggested that NiMo was playing "a dangerous game of chicken" by threatening bankruptcy to force renegotiation of existing contracts with IPPs.
"We see nothing in NiMo's financial or operating profile to suggest that it is a bankruptcy candidate," Scotto said. "If the common shareholders took bankruptcy seriously, the stock probably would not be trading in the $11 vicinity. It would trade at a single digit." But he warned bondholders to watch out for the corporate restructuring: "Is our greatest fear about to be realized?"
Heart and Soul
To see how these plans will work, you've got to look beyond the "Mega-NOPR" now pending at the Federal Energy Regulatory Commission. Jeanine Hull, vice president and general counsel at LG&E Energy, observes: "We are moving to a transmission system that will support competition. That is the fundamental goal of the Mega-NOPR."
But the future is murky. The Mega-NOPR introduces new concepts like "available transmission capacity" that nobody really knows how to define, according to David Swanson, senior vice president at the Edison Electric Institute. Swanson warns: "The T&D system is the heart and soul of keeping your generation plant viable strategically."
If Swanson is right, how are electric utilities going to unbundle generation from transmission? People are talking about OpCo's, GridCo's, and PoolCo's. An OpCo would separate ownership from control; the ISO would operate the transmission grid while utilities own the lines. Jeanine Hull calls that "an attorney's worst nightmare." She and others see the industry moving to a GridCo model, with utilities exchanging their transmission plant for stock in the GridCo. But Hull detests the PoolCo model: "It's an OpCo or GridCo with a market function thrown in. That perverts the market."
Whichever model prevails will pose problems. Philip O'Connor, managing director at Palmer Bellevue/Coopers & Lybrand, asks this question: "If I'm an IPP, and if I site my generating plant to relieve a transmission constraint, do I get paid? And how much? And by whom?"
William Rutz, manager of distribution real-time applications for ABB Systems Control, puts it this way: "The control center is the arena where the Mega-NOPR will be negotiated."
Pick and Choose
Whatever happens, it's sure to involve political compromise. But John Anderson and his "guys" at ELCON (see sidebar) may not need to give much.
Jeanine Hull, herself a former committee staffer from Capitol Hill, believes that Congress is warming to competition: "The House and Senate committees are talking electric competition. Not wholesale competition, but retail. They are aware of the experience in natural gas, where very few benefits from competition filtered down to the retail level. They want to make sure that doesn't happen on the electric side."
Eric Hirst, research engineer at Oak Ridge National Laboratory, supplies the last word: "When you get done unbundling, the sum of rates for all the pieces will probably exceed the former bundled rate. But at least the customer can pick and choose."
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