North Walpole, N.H.
Sandy Knowles was courted with promises of free birdhouses, free light bulbs,
even free fir trees. In the end, she went with the trees.
Knowles, a North Walpole town commissioner, was offered the premiums by
some of the 43 utility companies vying to sell electricity to the town.
Knowles and the village's other 1,100 residents are part of an experiment
that will reshape the future of the U.S. electric power industry. The town
is one of a handful of nationwide test sites where utility companies are
competing to sell electricity.
Until now, electric utilities have been legal monopolies. Each company is
given the legal right to be the only supplier of electricity within a given
geographic area. In exchange, its charges to consumers are regulated by
a state public utilities commission.
But now virtually every state is busy restructuring its regulations to let
any generating company compete for customers within its borders. Most states
are expected to implement competition among electric utilities within the
next five years.
"This is a snowball rolling downhill," said Iowa state Sen. Patrick
Deluhery, who has worked on electricity competition in his own state and
with the national Center for Policy Alternatives, a private policy study
organization. "And no one is going to stop it."
Advocates say competition will lower electric prices while boosting service,
just as some claim price deregulation has done in long-distance telephone
services and the wholesale natural gas industry. In several states, environmentalists
also see an opportunity to move toward renewable energy sources.
In pilot programs, the lower-price claim is proving true for sizable users
like North Walpole's village government. "We chose the lowest rate,"
said Knowles, "which included a guaranteed 15 percent savings over
what we'd been paying but actually is saving us closer to 20 percent each
month. That means a lot when we've been paying $800 a month for electricity."
But some observers expect individual consumers to fare less well.
"Deregulation will be good for large users who can use their buying
power to bargain for better rates," said Bob Walker, community outreach
organizer for the Vermont Consumers Energy Cooperative. "But individuals
by themselves have no bargaining power. They'll have to pick the best of
whatever options are left to them."
He and others fear individual consumers may wind up subsidizing the rock-bottom
rates that the largest users can win for themselves.
TO AVOID THAT FATE, consumers already are banding together in the
form of consumer cooperatives to pool their purchasing power and bargain
for better electric rates from generating companies.
Some believe these new alliances could result in a fundamental transfer
of power, taking control of the electric generation industry away from utilities
and placing it squarely in the hands of consumers, especially those pushing
for more efficient, environmentally friendly and cleaner-burning energy
technologies.
Yet those behind the cooperative push acknowledge they're just trying to
adjust to the new regulatory realities.
"There are no consumer or low-income-advocacy groups that started out
advocating price competition," said Beth Sachs, executive director
of the Vermont Energy Investment Corp. The private nonprofit organization
provides energy-related advice and services to consumer organizations across
North America.
In the U.S. Congress, at least six bills have been introduced requiring
all states to open their electric markets to competition by some fixed date
between 1999 and 2003 and imposing a variety of conditions on generating
companies.
The idea of competition is relatively simple. Individual consumers would
be free to buy electricity from any generating company they wish, not just
the single local utility monopoly that supplies them now. Utilities would
compete by offering the same or better service at a lower price, lowering
overall electric bills.
THE GENERATING COMPANY a consumer chooses would send electricity
into the existing regional transmission network, and the consumers would
withdraw electricity from the network over the single set of poles and wires
already serving them. Local electric companies would continue to own and
maintain the poles and wires throughout their traditional service areas
as regulated monopolies, billing consumers a fixed monthly charge for that
service.
The impetus for competition has come chiefly from large commercial users
of electricity, particularly manufacturers. Factories in some states found
themselves paying higher electric rates -- and therefore having to charge
higher prices for their products -- than competitors in others. Seeking
a level playing field, manufacturers began pressuring regulators to open
the electricity market to competition.
In April 1996, the Federal Energy Regulatory Commission issued rules that
forced utilities to carry on their own wires electricity generated by competing
suppliers. By the time of the ruling, several states already had developed
plans to allow utilities to compete.
UNDER COMPETITION, instead of being fixed by regulators, prices will
be set by market forces -- in which the largest purchasers, whether the
commodity is corn or long-distance-telephone time, can leverage lower prices
for themselves.
To give individual consumers as much bargaining clout as giant corporations,
consumer cooperatives are being formed in several states. Mimicking rural
electric co-ops formed in the 1920s and 1930s, the nonprofit groups would
buy electricity in bulk and resell it to members.
Many plan to offer a range of additional services, including home energy
audits and sales of rooftop solar power cells.
Nearly a dozen towns along Cape Cod in Massachusetts are uniting in a regional
compact to negotiate bargain-basement prices on behalf of 180,000 local
customers.
Several co-ops in the northeastern United States are even mulling the creation
of a "co-op of co-ops" to give the groups even greater leverage
in negotiating prices.
"To the degree that small consumers can band together and act like
one big one, they'll be better off," said Sachs of the Vermont Energy
Investment Corporation.
ONE OF THE MOST ambitious projects is under way in Nevada. A nonprofit
consumer cooperative, backed by private financing, is planning to buy the
transmission and distribution system -- the poles and wires now owned by
the Nevada Power Company, which currently provides electricity to 1.2 million
people in the Las Vegas area.
"When the same company generates and distributes electricity, there's
no great incentive to maximize efficiency because that reduces sales,"
says Eric Blank, energy project manager with the Boulder, Colo.-based Land
and Water Fund, which is helping to structure the deal. "By breaking
apart generation and distribution, you remove that incentive."
As a tax-exempt venture, the Nevada cooperative expects to save at least
$20 million annually in taxes that the for-profit utility now pays. With
no need also to pay dividends or pile up profits, the co-op claims that
it can serve Las Vegas's growing population more cheaply than the current
utility.
Under the plan, the nonprofit also would invest in energy efficiency as
well as solar power systems and other small-scale generation technologies.
"We hope this can be a model of how restructuring can occur in a way
that enhances competition in electric generation while protecting consumers
and other long-term public interests," Blank says.
AMONG THOSE PUBLIC interests, environmental issues loom large. The
Vermont Consumers Energy Cooperative plans to buy as much electricity made
from renewable fuels as it can while keeping retail electric prices affordable.
Citizens of Davis, Calif., are working to form a municipal utility district
that will buy electricity generated from sustainable fuels.
In Vermont and other states, regulators plan to mandate a minimal percentage
of renewable fuels that competing utilities must use. Some emerging co-ops
and municipal utility districts are drafting regulations that will permit
only utilities meeting stringent environmental standards to use their wires.
"Moving to a competitive market can fundamentally shift the way energy
is generated and used," said Scudder Parker, director of the energy
efficiency office of the Vermont Department of Public Service. "This
has the real potential to create an efficient electric system that benefits
consumers and the environment at the same time."
Bennett Daviss is a free-lance journalist. With Nobel physicist Kenneth
Wilson, he is co-author of the book Redesigning Education. For more
information, contact: Sandy Knowles, commissioner, North Walpole Village
District, North Walpole, N.H., 603-445-2453; Patrick Deluhery, Iowa state
senator and assistant professor of economics and business administration
at St. Ambrose University, Davenport, Iowa, 319-333-6139; 319-381-1477;
Beth Sachs, executive director, Vermont Energy Investment Corp., Burlington,
Vt., 802-658-6060, ext. 20; Bob Walker, community outreach organizer, Vermont
Consumers Energy Coop, Thetford, Vt., 802-785-4126; Eric Blank, director,
energy project, Land and Water Fund, Nevada Power Co., Las Vegas, Nev.,
702-367-5000; Scudder Parker, director, energy efficiency division, Vermont
Department of Public Service, Montpelier, Vt., 802-828-2811.