A word to the wise, Doug: you’d better bone up fast. The friendly company that provides your electricity and fills that big skyscraper downtown is about to go the way of Ma Bell. Already, competitors are beginning to bite off big pieces of what used to be a monopoly franchise. Trials in New Hampshire and Illinois are letting consumers like Anderson pick the electric company of their dreams. States from California to Rhode Island are laying out the rules that will bring competition as early as 1997. You might face lower rates. You’re guaranteed to face confusion as you scout out the best deal. “Now, the customers have to do the work,” says Wallace Rams-den, a staffer for New Hampshire’s Public Utilities Commission. “Before, all they cared about was flipping the light switch.”
Until recently, electricity seemed immune from the competitive frenzy that has swept industries from trucking to telephones. Having one company own a region’s wires and power plants, under tight regulation, was supposed to be more efficient than competition. But now some parts of the business are losing their monopoly status. You’ll still have a single wire to your house. But when it comes to the electricity that moves along that wire, a slew of companies–including some that don’t even make electricity–will be bidding for your business. “It’s going to be a commodity,” predicts George Gantz of Unitil, a New Hampshire holding company. “It’s going to be sold a lot more like milk and butter.”
New Hampshire offers a taste of what’s to come. Since May,.California 17,000 households have been able to choose among 30 suppliers. The biggest share of their bill goes to the former monopoly, which still owns the wires. But the energy itself is up for grabs. Pocket calculator ready? Granitec State Energy offers a flat rate of 2.5 cents per kilowatt hour, good for 60 days, plus a free bird feeder. Unitil Corp. is cheaper for now, 2.4 cents, but the price can change daily. Or there’s Central Maine Power,which wants a steep cents 3.8 each for the first 600 kilowatt hours but drops the rate sharply for big users and guarantees it for two years. The best deal depends on how much each customer uses- and how much price risk he or she can stand. In order to learn the competitive ropes, most of the players are selling power for less than it costs to make.
Things will get a whole lot more complicated when experiments yield to full-fledged competition, which arrives in Rhode Island starting next year. To get the rock-bottom rates normally accorded big users, families may need to band together. “I think we’re going to see neighborhoods buying electricity,” says Bill McKinnon of Northeast Utilities. But consumers may have other choices. Generators may deliver power dirt-cheap at night but dear in the afternoon; Houston Lighting and Power is testing whether families will change their habits with that sort of pricing. Scientific-Atlanta has a new doodad that could let the electric supplier switch off some of your appliances in a pinch–in return, of course, for a break on your rate. At the other extreme, Fred Abrew, CEO of Pittsburgh utility Equitable Resources, thinks he can make money pricing electricity just like cable TV, with a fixed monthly charge for unlimited usage. “The meter is darn near irrelevant,” he says.
How much will you really save? In most states, the juice itself is only a small part of an electric bill. The big savings will come from narrowing the gap between the roughly 3 cents it costs to generate a kilowatt (enough to run a central air conditioner for about 15 minutes) and the 8.$6 cents the average family pays. That markup covers corporate bureaucracy, transmission, meter reading and the interest on the bonds sold to build generation. If competition comes, a reseller like Wheeled Electric Power Corp., which owns no turbines or wires, can undercut a utility burdened by a $4 billion nuclear plant. So in state after state, politically powerful utilities, backed by their unions, are begging legislatures to slow down competition by forcing everyone, no matter whose electricity they buy, to pay for the “stranded cost” of these uneconomic past investments. By and large, they’re winning the battle, to the detriment of consumers. Last week California legislators agreed to make ratepayers ante up $80 billion as competition takes effect. Until those costs are paid off, bills won’t shrink much no matter what happens to the price of the electricity itself.
Competition has some other clouds, too. Take pollution. Stringent environmental requirements in the Northeast make for high rates. Today’s monopolies can force customers to pay up in return for cleaner air. Tomorrow, however, those customers will be able to buy cheaper power from dirty coal-burning plants in the Midwest. “The Midwestern utilities could ramp up production, ship the power into the Northeast and also ship the pollution into the Northeast by reason of the prevailing winds,” says David Hawkins of the Natural Resources Defense Council. Environmental regulators recognize the problem, but they haven’t agreed how to solve it. Reliability is another concern. Today’s monopolies often cooperate closely to avert power failures. If those companies face off, though, cooperation may take a back seat to competition. That could lead to more problems like last month’s blackout in California unless the states set tight rules.
Even before it arrives, competition is turning the $$00 billion-a-year electric industry upside down. Aggressive newcomers like Enron Corp., which builds power plants, are suddenly buying in.
Dozens of companies are shopping for merger partners, and they’ll soon start shedding thousands of workers. “Utilities are doing everything they can to cut costs now, before competition comes,” says Arthur Andersen consultant Charles Cicchetti. Five years from now, you can look forward to an electric company that looks much different from today’s. And to dinnertime ca]Is and junk mail offering to save you big money every time you flip the light switch.
The push for competition is greatest where electricity costs most – the Northeast and California.
STATE AVERAGE RESIDENTIAL COSTS (ANNUAL) (PER KWH) New york $ 851 13.5 cents New Hampshire 881 12.8 California 730 11.7 Illinois 874 10.4 Pennsylvania 857 9.6 Texas 1,008 7.7 Georgia 953 7.6 Colorado 551 7.5 Nebraska 722 6.4 Washington 667 5.0
Source: Edison Electric Institute
