ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, January 3, 1996 TAG: 9601030054
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
`THE 800-P0UND GORILLA' of the power industry has thrown its weight behind the industry's movement from monopolies to competition among retailers of electricity.
The power industry's movement from monopoly toward retail competition got a big boost when American Electric Power Co. threw in its support, a spokesman for an association of large industrial users of electricity said Tuesday.
AEP's support is very significant because of the size of the company, the nation's second-largest investor-owned utility, said John Hughes, director of technical affairs for Elcon, an association of large industrial electric customers. Elcon's membership includes such companies as Amoco Corp., Bethlehem Steel Corp., DuPont Corp., Ford Motor Co., Owens-Illinois, and Whirlpool Corp.
"Some would say [AEP] epitomizes the 800-pound gorilla of the power industry," Hughes said. AEP's support of competition, he said, represents a major victory for pro-competitive forces.
"AEP believes that all customers should receive the benefits of competition," E. Linn Draper Jr., AEP's chairman, president and chief executive officer, said in a statement released Oct. 26. "We also believe that customers should be free to buy electricity from anyone they choose," he said.
It was AEP's interest in preparing for deregulation and the coming competition within the power industry that led the Columbus, Ohio-based utility to reorganize itself over the past year according to operating functions and to abandon its system of regional, partially independent power companies.
That reorganization culminated Monday, when Roanoke-based Appalachian Power Co. and AEP's other six regional operating subsidiaries consolidated into a single company under the American Electric Power name.
AEP's new structure has separate business units dedicated to power generation, transmission and distribution, compared to the former organization based on geographic service areas.
The company has taken the position that power generation, which varies widely in price, should be competitive. Power transmission and distribution, AEP says, should continue to be regulated by state and federal agencies because the public would not benefit from having many power lines on the same path, leading to the same customers.
Under AEP's proposed plan for competition, an independent operator would be created to manage and operate, but not own, the transmission grid. This system operator would coordinate and schedule transmission service independent of the electric companies to ensure fairness and promote reliable operations, AEP said.
AEP also envisions creation of a regional power exchange, which would buy electricity from all generators in half-hour blocks and resell it at an established price. Large customers still would be free to negotiate contracts for power, and buyers would pay a separate fee for its transmission and distribution.
Hughes of Elcon, the group of big industrial users, said he agrees generally with AEP's scheme for competition but has doubts about the proposed power exchange, a pool-type of arrangement currently being tried without much success in Great Britain. Customers dealing directly with power generators seems to be a better approach, he said.
Retail competition for electricity is not an untried idea, Hughes noted. Norway, he said, has had a deregulated system for years, and even the smallest homeowner there can shop around for power. Other Scandinavian countries and Great Britain are moving in that direction, he said.
In the United States, some large industrial retail customers have been allowed to bypass local utilities in New York and the Pacific Northwest, Hughes said. All around the country, individual states are developing plans for retail competition in the power industry, he said. Virginia's State Corporation Commission ordered its staff last year to investigate the issues surrounding competition.
Immediately following the passage of the 1992 federal energy bill, which opened up wholesale electricity markets to competition, Elcon began pushing for retail competition, Hughes said. Competition should make power supplies more reliable and less expensive, he said.
Reliability suffers, he said, because power is not now marketed correctly. For instance, in summer, when temperatures and the demand for power for cooling rise, electricity generally continues to sell at the same price as in milder weather. That puts supplies under strain. Allowing the price to rise with demand would promote conservation and encourage more suppliers into the marketplace, he said.
Still, Hughes said, the average price paid by consumers could be cut by as much as half with competition because of the efficiencies that will be forced on the power industry.
American Electric Power's decision to support competition is market driven and was a "no-brainer," Hughes said. AEP, as a low-cost producer of power, has more to gain from competition than it has to lose, he said.
Hughes said he has confidence that Draper's support of competition is sincere. What the utility has to overcome, he said, is the thinking of entrenched managers who know how to operate as a monopoly but not competitively.
He hopes to learn more about AEP's proposal for competition at a meeting next week in Columbus for industrial power customers , Hughes said.
LENGTH: Long : 101 lines ILLUSTRATION: PHOTO: CINDY PINKSTON/Staff. This truck is awaiting the newby CNBstripes and a larger AEP
logo. color.