Public power is competitive power, and that keeps IOUs on their toes.
There they go again. You know who I mean, the critics who fear us in a competitive electric utility environment, or who oppose, for ideological reasons, government involvement in the power business.
Charles E. Bayless, in his article "Time's Up for Public Power" (Public Utilities Fortnightly, July 1, 1998), offered up just the latest of these below-the-belt blows.
It's tempting to respond in kind to these critics. Why? Because they torture the facts and distort the record.
Let me raise the bar of the debate.
Despite what Mr. Bayless or anyone else writes, the time is not up for public power. In fact, public power is right for the times, and the time is right for public power.
Public power has been around since the start of the electric industry. Data collected annually by the federal government for nearly 50 years demonstrates an enviable record of lower rates for public power's customers. Despite our minority status and lack of funds to grease the gears of Washington's political machines, we have been incredibly successful in the legislative and regulatory arenas.
Our opponents argue that public power is a thing of the past, an outmoded idea from the New Deal. Nonsense. This year, the Long Island Power Authority became the newest and second-largest (by customers served) public power system in the country. Dozens of communities across the country are trying to create public power systems, despite being thwarted by investor-owned utilities and their allies.
A century ago, public power was right for the time because private power company rates were high, service was poor, and the market wasn't working to remedy these problems. Sounds a lot like today, no?
From Red Scare to Restructuring
Some of our opponents concede reluctantly that public power played a useful role in the past, then say it has no place in the more competitive future. These public power critics are simply spinning the debate on restructuring to advance their goal of eliminating public power. They did that in the 1940s and 1950s using the Red Scare, when they called for the abolition of public power because it was creeping socialism. They did it in the 1980s and early 1990s when they argued that the serious federal deficit justified the sale of the PMAs and TVA, the elimination of tax-exempt financing, and taxation of public power revenues. Today, they argue public power has no place in a competitive environment.
In fact, the continued presence of public power is necessary to achieve that environment.
As noted economist Alfred Kahn wrote 25 years ago, "there is strong evidence in the public utility arena that competition between the two systems of organization [public and private power], like competition among private businesses, is highly conducive to improved performance." (The Economics of Regulation, Vol. II, p. 105.)
Improved performance is exactly what federal and state legislators and regulators are looking for from competition in a restructured environment.
In addition to being an actual competitor, public power plays an important public policy role as an advocate of structural protections and rules of play that will produce a competitive environment. Competition isn't the natural order. The goal of the unrestrained competitor is to eliminate competition and establish a monopoly. To prevent monopoly power abuses and to protect consumers, society puts in place structural protections and rules of play, such as the Public Utility Holding Company Act and our antitrust laws.
Public power has been, and continues to be, on the leading edge of these debates. Public power has led the fight against stand-alone repeal of PUHCA, insisting that before it is repealed, we must have in place a new structure that provides comparable consumer protections.
We insist, too, that Congress and the Administration address problems of market power.Our success in articulating the problems of unrestrained market power and proposing solutions that work in the public interest may account for some of the current attacks on us.
Sen. Gorton Floats A Proposal
The time is also right for public power to secure federal legislation to protect the interests of its communities. If Congress begins to move on restructuring legislation, then I believe the time will be right for public power to obtain the "private use" relief that we need.
Our private use problem arises from the inherent conflict between old rules and new. Federal tax law prohibits more than a small amount of "private use" of facilities constructed with tax-exempt bonds. The problem is frequently mischaracterized as arising when public power enters into sales outside its existing service area. The private-use problem has nothing to do with where the power is sold, but arises based on how the power is sold. Sales to the general public under tariffs are generally OK, sales to specific entities under contract are problematic.
Under the old rules of exclusive service territories and monopoly service, public power systems could live with these private-use limitations. But the application of those rules in the new world of open transmission access and customer choice simply doesn't work for many public power systems with significant amounts of tax-exempt financed transmission and generation facilities.
Public power supports a proposal recently advanced by Sen. Slade Gorton (R-Wash.). Sen. Gorton has proposed what might be called a "local option" approach. Under this proposal, those who need relief from private-use limits could obtain it. But there would be a price to pay. Those public power systems that elect to have the private-use restrictions removed from existing facilities would be required to forego, temporarily or permanently, the use of tax-exempt financing for future generation.
The genius of the Gorton proposal lies in its respect for the rights of state and local governments to use tax-exempt bonds for their own local infrastructure needs, including providing electric service. It offers an opportunity for those existing public power systems facing a private use problem to obtain relief in exchange for a binding pledge not to use tax-exempt financing for new generation.
Sen. Gorton characterizes his bill as a reasonable compromise between those who simply want outstanding debt grandfathered, and those who believe public power has competitive advantages that should be eliminated as restructuring goes forward. The fact that he has developed a real compromise is reflected in the broad-based, bipartisan support his bill has received from a growing list of co-sponsors and organizations such as Enron Corp., the Natural Resources Defense Council and Washington Water Power.
Is Smaller Better?
Common wisdom today is that big is better and more efficient. There may be some truth to that if your goal is to be a major player in power generation or power marketing. But the idea that a distribution system must serve five or 10 million customers to obtain economies of scale doesn't stand up to careful analysis. Such an analysis was undertaken by John E. Kwoka, a George Washington University economics professor.
In his book, Power Structure (em Ownership, Integration and Competition in the U.S. Electric Utility Industry, he concludes that small, publicly-owned utilities tend to provide distribution service at lower cost than investor-owned utilities. Public power's size may be a future competitive advantage.
Customers will make new choices based on both price and customer service. Historically, we have always beaten the competition on price, and should continue to do so. Public power also pays close attention to customer service, while there is evidence that our competitors are dropping this ball.
Findings in the 1998 American Customer Satisfaction Index, a measurement tool developed at the University of Michigan Business School's National Quality Research Center, are revealing. According to Mike Lyman of Arthur Andersen, the survey shows that "customer satisfaction is distinctly negative for more than half the North American utilities," and "as many utilities have prepared for deregulation, they've reduced staff, closed offices and outsourced customer contact functions. In addition, mergers within the industry have forced management to focus on other issues, leaving some 'customer care' initiatives to fall through the cracks."
Public power also finds innovative ways of improving its systems and providing better service in response to customer demand, such as increasing its involvement in telecommunications. It comes as no surprise that private telecommunications and cable TV companies have unleashed an assault on community involvement in telecommunications that mirrors the historic attacks on public power. Note, for example, the article in the September 15 issue of Public Utilities Fortnightly entitled "Munis Find Cable TV a Costly Business." This piece is based on highly biased and erroneous material produced by the Cable Telecommunications Association, the cable TV industry's equivalent of the Edison Electric Institute.
In addition, companies like Southwestern Bell are asking state legislatures to prevent cities and towns from engaging in telecommunications ventures of any sort. A provision of federal law would appear to pre-empt such restrictive and anti-competitive state legislation. Unfortunately, the Federal Communications Commission has yet to exercise this authority as intended by Congress.
Those who suggest that our mission has been fulfilled are extremely arrogant. Public power's mission is to provide an essential utility service to its community. It is not up to Mr. Bayless, EEI, other critics or the U.S. Congress to determine when, if ever, the time might be up for community-owned public power. That decision rests in the hands of the citizens of the communities served by public power.
From everything going on around the country, I don't see the citizens of public power communities concluding that their utilities have fulfilled their mission. In fact, if anything, they are asking their public power systems to do more. And citizens in scores of other communities think the time may be right for public power in their hometown.
Based on everything I see, I am absolutely convinced that the time is right for public power, and public power is absolutely right for the time.
Alan H. Richardson is executive director of the American Public Power Association, the service organization for the nation's 2,000 community- and state-owned public power systems.
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