Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 5, 1995 TAG: 9503040041
SECTION: BUSINESS PAGE: F-4 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
DATELINE: LENGTH: Long
But contrary to economic theory, the development is very dangerous for residential and small-business electric customers, she said. "Any customer not using huge amounts of power will be at a disadvantage in the new competitive market," Brockway warned.
Traditionally, electric companies have been granted monopolies in the areas which they serve in return for guaranteeing to provide power to any household or business. Rates have been regulated by state commissions concerned with both protecting customers and providing utilities with sufficient profit margins. But consumers have had little - if any - choice as to their power company.
One goal of former President George Bush's administration and Congress in the 1992 Energy Policy Act was to increase competition within the electric power industry while maintaining the reliability of the electric power system.
To provide competition, the law permits a new type of electric power generator to enter the wholesale power market. These new "exempt wholesale generators" have the obligation to serve any customers, but also have no guaranteed market for the power they produce.
To make it easier for these new generators to sell power on the open market, the federal law allows the Federal Energy Regulatory Commission to order utilities to open their transmission lines to them as well as to utilities from other regions.
A Southwest Virginia example of this "wholesale wheeling" of power produced by one utility across another's transmission system happened a year ago. The FERC ordered Appalachian Power to transmit up to 50 megawatts of power from PSI Inc. of Indiana along its lines to several municipal utilities that are members of the Blue Ridge Power Agency. That agency includes municipal electric systems in Bedford and Martinsville, which in the past had bought their power from Appalachian.
Appalachian, itself, has recently signed contracts to sell power to North Carolina electric cooperatives that formerly were supplied by Carolina Power & Light Co. of Raleigh, N.C.
Public utility commissions in some states have proposed carrying the competition a step further, to the retail level. California has considered a plan that would allow large industrial customers to buy power from any source by 1997. It would extend that right to homeowners by 2002.
Virginia isn't considering similar plans, although nonutility producers such as industries that produce power as a byproduct of steam they produce for their own use account for 20 percent of the state's generation capacity.
The wide disparity in electric rates around the country and a desire by large industrial users of electricity to shop around for the best prices has helped stimulate interest in retail-level competition. A national survey reported in the August issue of Appalachian Power's magazine, The Illuminator, found that 56 percent of large industrial and commercial power customers would change electrical suppliers for a cost savings of 5 percent or less.
Supporters of retail-level competition in the $200 billion-a-year electricity market use the traditional free-market arguments. They say consumers would benefit from being able to shop around and also claim that competition would eliminate the inefficiencies resulting from the regulated structure in the utility industry.
Large industrial users of power, as well as some academics who view competition as a cure-all, have been pushing the idea of retail-level competition in the electricity market, utility analyst Brockway said. "It's the American way. It's motherhood and apple pie."
However, consumer advocates such as Brockway and those interested in environmental protection worry that if utilities lose some of their bigger customers to competition, residential and small-business customers will be forced to pick up the slack through higher electric rates. Also, efforts to conserve energy and protect the environment will fall prey to pressure for lower and more competitive utility operating costs, they fear.
One issue raised by the spectre of retail competition is whether utilities should be relieved of their traditional requirement to serve all customers in their service area. In other words, should public policy require a utility to be ready to resume service to a large customer that has earlier left its system to shop around for a better deal?
And, when large customers do leave a utility, who should bear the cost of the equipment that the utility bought to serve that lost customer? The utility's stockholders? The remaining customers? The competing power producer? These are tough questions that remain to be answered.
Some see as inevitable the end of the traditional utility and its division into separate generation, transmission and distribution companies.
The utility industry has excess generating capacity, which it can't pay for if it is forced to sell its power at free-market rates, Brockway said. The utilities have built power plants under the traditional government regulated system, arguing that it was needed to meet the future needs of customers.
However, big industrial power customers want to be rid of any responsibility for the costs of excess capacity and seek to pay only a free-market cost for power, Brockway said. That could leave utilities with up to $200 billion in stranded investment, she said.
Large industrial customers are the types of customers who will really have a choice when it comes to shopping around for electricity and that raises dual concerns, said Jean Fox of the Virginia Citizens Consumer Council. One is: Who will make up the lost revenue when a utility loses a big customer to competition? The other is: Who will make up the lost revenue when a utility gives a big customer a special deal to keep the customer's business?
The end result is that if full-scale retail competition comes to the power industry, "the lights will stay on but some people won't be able to plug in," Brockway said.
Jeff Gleason, an attorney with the Southern Environmental Law Center in Charlottesville, said the impact of competition in the utility industry on the environment depends on how far competition goes.
"We believe that broader competition on the wholesale level will produce significant benefits for both the environment and economic benefits to customers," Gleason said. Opening up the wholesale market should lead to more efficient and thus cleaner power generation and encourage the development of renewable and other clean energy resources, he said.
However if competition is pushed to the retail level and large businesses are allowed to shop around for electricity, power generators will be pressured to keep their prices as low as possible in order to compete. "If what that means is prices are kept low by allowing the air to become dirtier, there is a question about whether that is the best policy to follow," he said.
As the country discusses how to restructure the electric industry its impact on the environment and strategies developed to lessen that impact must be kept in mind, Gleason said.
by CNB