In America's free-market economy, competition usually means lower prices for consumers.
It remains to be seen if the deregulation of the utility industry will yield the same results.
Congress passed the Energy Policy Act in 1992 to promote competition in the generation of electricity. Since that time, states have begun the process of deregulating an industry that is hard for most consumers to understand now, let alone with a new set of rules.
| Electricity systems are divided into segments, called:
1. generation
2. transmission
3. distribution |
In the past, customers knew that power was supplied to their business or home by one company in the area, and they knew where to go if there were problems.
All of that is changing, albeit slowly. Deregulation is already happening in some states, while other states are taking a wait-and-see approach. Regardless of a state's level of deregulation, utilities across the country are planning for competition and are evaluating how their services will change in a deregulated environment.
How it works
Electricity systems are divided into segments, called generation, transmission and distribution.
Generation is the process by which fuels or other sources of energy are converted into electric energy. Transmission is how the generated electricity is moved from the generation plant to the wholesale purchaser. Distribution is delivering the power from the wholesale purchaser to the customer.
In a deregulated environment, generation is the component open to consumer choice. According to data from the Electric Cooperatives of Arkansas, generation accounts for about 60 percent of the cost of electricity, with the rest coming from transmission and distribution.
Taking the plunge
| Generation accounts for about 60 percent of the cost of electricity, with the rest coming from transmission and distribution. |
New York is one of the states moving forward with deregulation. In an agreement reached earlier this year with the state of New York, food processors and farmers can now shop for their supplier of power on the open market. The market will open up to more businesses, and eventually, in late 1999, all customers will be able to choose their power supplier on the open market.
"We see it as a win-win situation," said Christopher Wood, economic development coordinator for New York State Electric and Gas. "We will have the opportunity to enter into other markets we otherwise could not."
|
"We see it as a win-win situation. We will have the opportunity
to enter into other markets we otherwise
could not."
-- Christopher Wood, economic development coordinator, New York State Electric and Gas |
Rebecca Wingenroth, director of economic development for GPU Energy in Reading, Pa., also is making plans for deregulation.
In Pennsylvania, all GPU customers will have a choice of power supplier beginning Jan. 1, 1999 if a tentative state agreement is approved.
A pilot program has been in place in Pennsylvania for over a year, where 5 percent of the customers have had choice on a limited amount of power.
"We look at it as good news in economic development," Wingenroth said.
Industry: utilities' golden eggs
Most utility experts agree that the big winners, at least initially, in deregulation will be large industrial power users. They are the golden eggs among utilities, and competition will be fiercest for large companies.
With all the competition for these users, however, some mid-sized utilities question whether that will be a highly profitable area.
"One of the questions is 'Can we make money after the dust has settled,'" said David Hudgins, economic development manager for Old Dominion Electric Cooperative in Virginia.
"Mega-companies are going to be offering slashed rates to the large consumers, and we might not be able to enter that," he said. "We think
we can target the small to middle-sized consumer.
"Of course, we are still going to have an economic development rate to make our area attractive, but the 'megas' will have to fight it out for the big guys."
Pieces of the puzzle
Virginia is behind states such as Pennsylvania and California in implementing deregulation, which Hudgins said can be a plus.
He said utilities can study the mistakes other states make and learn from them. Virginia is expected to decide on some deregulation
policies during its 1999 legislative session.
The leading state in deregulation is California. As of March 31, it became a deregulated state.
| Congress passed the Energy Policy Act in 1992 to promote competition in the generation of electricity.
|
Grant Thomas, project manager in the Economic Development Office of Southern California Edison, said competition has forced the utlity to become better at what it does. New options Edison is offering include special rates to draw new power users.
"We have Flexible Pricing Options which allow us to provide economic development rates to attract companies, as well as to assist expanding and existing companies here," Thomas said. "We feel if we add jobs and revenue for the community, it's a win for the consumer and for the utilities."
Georgia is taking a wait-and-see attitude toward deregulation. Dennis Chastain, manager of economic development for Oglethorpe Power, said the Legislature there may form a study committee in the next session and have a proposal ready by the year 2000.
"We're like a lot of states in that we are going to monitor the activities of California and some of the other states and react accordingly," Chastain said. "Our rates are below the national average, so people aren't itching to get to it like some other places."
Adding value
While the waiting game is going on, some utilities are looking to add services when deregulation hits their areas.
"We are looking at value-added services," Hudgins said. "By that I mean Internet service, propane, natural gas, home or business security and energy monitoring. We are already hooked up to that business or house, so why not make these things available to people? They would just have to pay one bill at one time for all these services instead of a bunch of bills."
Anthony Rascano, economic development consultant for Detroit Edison, in Michigan, said its services will continue to be needed. The utility has an extensive site inventory system, with a listing of potential properties for relocating businesses, along with pictures of the facilities and maps.
"We are able to provide this service to the area, where individual towns would have to spend a lot of money for something like this," Rascano said. "We know that customers are going to have the ability to choose where they want to purchase their electricity, and we want them to purchase from us. But more importantly, we want to locate those businesses in our area to create the spin-off growth of new jobs and support."
In addition to competing in new markets, utilities must also work to retain their current customers. New York State Electric has taken a proactive approach toward its large industrial customers by offering them discounted rates.
Level playing field
With unequal amounts of deregulation across the nation, some states have acted to protect their utilities from what they see as unfair competition.
Utilities that want to compete for Illinois customers must be from a state where competition is also allowed. The potential competitors must also be approved by a commission in Illinois.
"We were just looking for a level playing field," said T.J. Holt of Illinois Power.
"We're for deregulation as long as there are reciprocal agreements with other states," Rascano said, echoing Holt's thoughts. "What concerns us is only larger accounts might benefit. We want the middle and small-size customer to be able to benefit."
The next few years should bring even more changes in utilities, as more and more states adopt deregulation policies. Each state may change a little differently, but one thing is clear to businesses looking to expand or move to another state -- power could be cheaper.
| "There are headaches that go along with this. You must learn how to deal with them. The companies that can adapt and continue to provide good service are the ones who will prosper."
-- E. Wilson Davis, manager of economic development,
American Electric Power, Roanoke, Va. |
"There are headaches that go along with this. You must learn how to deal with them," said E. Wilson Davis, manager of economic development for American Electric Power in Roanoke, Va. "The companies that can adapt and continue to provide good service are the ones who will prosper."
While the utilities sort through the new rules, businesses should not expect a drop-off in the level of services and expansion options.
Holt said Illinois Power has upgraded its services to customers in the last few years, and that won't change. For example, if a company in the service area wants a new piece of equipment, such as a chiller, the utility could help them acquire it.
"Those types of services are going to continue to be offered in a deregulated market, and may even increase," Holt said.
Just what businesses wanted to hear.
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