Power Surge

Soon you can choose a utility company – just like long distance and, um, cable TV. Doesn’t that sound great?

The noted futurist Leland Kaiser has said: “the future is not something we predict … it is something we invent.” We are inventing our future so we can continue to safeguard the interests of our stakeholders: our owners – the City of Orlando and its citizens, all of our customers, and our employees. – From the Orlando Utilities Commission 1995 Annual Report.

There are four small television screens on each side of the control room at OUC’s Stanton Energy Center. On one side of the room, the video is black and white. On the other it is color. Every screen shows fire. Fueled by kentucky coal, those fires heat water into steam, which turns two big turbines that produce 920 megawatts of electricity. If you live in Orlando, this electricity flows into your home, running your heater and your dryer, your stove and your TV. Each of the two units at the Stanton plant cost about half a billion dollars to build. You pay about 7.5 cents per kilowatt hour for the electricity, about what your neighbors in Winter Park, whose power comes from Florida Power Co., pay for theirs.

If you’re an OUC customer you also, in a roundabout way, own the Stanton plant. But soon, if a few well-placed politicians in Washington have their way, Stanton may be worthless. That’s because, by the turn of the century, it’s likely you will be able to buy electricity more cheaply from a company in Ohio or Alabama. Candice Bergen will appear on the tube and pitch 4-cents-a-kilowatt electricity form Company X. Tired-sounding telemarketers will call your home at suppertime. Coupons will flood your mailbox offering a month’s free power if you switch. You know, the American Way. It’s called deregulation and, as with the telecommunications industry, it promises a better world through Market Discipline.

If you’ve paid a cable TV bill or flown coach recently, you know the drill. Smooth-talking MBAs and hard-headed TV pundits say “competition,” and next thing you know, they’ve turned something that worked into a big headache. Utility deregulation is the biggest debate you never heard of, and it is gathering steam. Last July, Rep. Dan Schaefer (R-Colo.), chairman of a House subcommittee, introduced legislation that would give all consumers the ability to choose their own electricity service by Dec. 15, 2000. The bill caused a panic, as former industry allies split into opposing camps while critics arrayed themselves into a shape never seen before. Beginning with an obscure think-tank analysis promising an average 43 percent reduction in consumers’ electric bills, the projections branch off into a bewildering array of scenarios. In short, no one knows what’s going to happen. This appears certain: over the next 18 months, the magic of the “free market” will turn OUC – and every other traditional utility – into ValuJuice.

State regulators and power company operators are acting as though this trend will not affect Florida, citing historically low Florida electric rates. But the rules have been loosening up for five years. And already power companies have to open their wires to companies selling power from out ot state. This is not necessarily bad. J. Sheridan Becht, OUC’s media relations guy, relates a story: A hydroelectric power plant in Claifornia has electricity to spare all night. Every morning here on the East Coast, 30 million vain adults crank up blow dryers. Usually the toaster or the microwave is on, too. During this peak demand period, OUC can buy power from that dam in California. It’s still 3 a.m. there; clock radios and night lights don’t take much power. We win; they win. This is called “wheeling,” and it’s not really efficient most of the time. “But…even paying all those companies their wheeling fees along the way, it’s still cheaper to buy power out there than it is to make it here.”

The grand efficiencies depicted by free market theorists work well on clean white paper of their own reports. What happens in the actual world is a little different, and much weirder. Five years ago Argentina, facing high electric costs and constant outages from its state-run power company, deregulated the industry. The nationalized company was split into three units – generation, transmission and distribution – and then sold off. Big U.S. and European companies rushed in on the gathering end, sure they could run the aging plants with greater efficiency than ever. And they did. So efficient did Argentina’s generators become that in two years the price of electricity dropped to zero. Customers were delighted. Investors were not. The problem was overcapacity. While tough-minded utility managers like CMS in Michigan were sprucing up coal-fired plants other investors were building more efficient gas plants right next to the newly privatized Argentinean gas fields.

The gas producers gave away the product to create demand, causing the 100 percent drop in consumer prices in October of 1994. Eventually the price bounced back to about 40 percent of where it had started. The Michigan company took a $100 million bath, and a partner bought them out and converted their coal plant to natural gas.

What’s this got to do with us? Argentina is the model for the emerging American system. California has gone the furthest among states in copying the model, but Maine and Alabama have borrowed ideas. Even little OUC has split its electrical capacity into generation (which it calls “power resources”), transmission, and distribution units. So it’s worth considering the pros and cons of this competition, who it benefits, and whether it is truly efficient. One of the major problems facing the Argentinean utility before competition was delinquent customers. Many people simply ignored their bills. Many others – the desperate poor living in shacks – stole from their neighbours with extension cords. The people who send out electric bills and collect them are called distributers. In Argentina they were given a price cap and allowed to keep all the money they collect between their cost for electricity and the cap. They got computers, and they got tough. Now in Argentina, people pay their bills. If they can, that is. Those who can’t are shut off.

OUC’s bad consumer debt is currently below one-half of 1 percent, which is comparable to other Florida utilities, according to OUC spokesman Becht. This doesn’t offer much in the way of potential improvement. But every little bit counts, and OUC is looking for more efficiency already. “In the past,” Becht says, “we’ve had the luxury of being a little more friendly…in terms of our credit policy.”

Actually, regulators have set the terms of shutoffs, and require five days’ notice for delinquent payments, no holiday shutoffs, that sort of thing. Outside observers say that in a deregulated environment, utilities will get pretty mean in their collection practices, and they’ll quickly roll up the helping hand programs like OUC’s “Project Care” that currently buoy troubled ratepayers. “That is one area where power companies will really want to cut the rope,” says Sue Mullins, a researcher with The Florida Energy Reporter, a non-profit watchdog organization. Some already have. Southern California Edison tripled its disconnections in 1995 to 500,000. But if the poor die in trailer fires because they didn’t have the good sense to be rich, how will the rich fare?

Quite well: large industrial electric users are driving the deregulation trend, claiming they need the cheaper power to “compete in global markets.” The Electricity Consumers Resource Council, representing 30 of the nation’s largest users of electricity, joined the debate last year. The group includes auto makers, steel makers, brewers and chemical companies, and has been reaching out to consumer groups and homeowner associations. The big users see big savings in the deregulated future and, noting the terror in their local electric company’s eyes, have already begun to squeeze. OUC has pledged to spend $6 million to build a new air conditioning system for Lockheed Martin in exchange for an undisclosed multi-year agreement to buy power and water from the company. Project Care, by contrast, netted $32,000 last year. Lockheed spends about $5.6 million a year on OUC, making it the utility’s second biggest customer after the Greater Orlando Aviation Authority.

OUC is now negotiating with all of its big accounts, says Becht, creating customer service teams to ensure they won’t take their business elsewhere. The policy is bound to cost smaller customers, but Becht says it is still fair because it costs OUC less to serve a big steady customer. You know, they put a 32-cent stamp on your $104 bill; they put the same stamp on the bill they send to Lockheed which is $400,000. But former OUC President Mel Martinez, who stepped down two weeks ago to run for Orange County chairman, was more succinct on the reason for courting Lockheed. “The viability of our whole enterprise depends on it,” he told The Orlando Sentinel. That’s because 10 years ago OUC built Stanton I. Coal plants run steady for six months. It takes two days just to fire one up. By building Stanton, OUC locked itself into a business plan that calls for selling lots of power all the time.

“The bottom line: the local yokels were sold a bill of goods,” says Irby Pugh, a lawyer who represented environmental groups fighting the plants a decade ago. “We warned them about deregulation before they built Stanton II.” OUC has $1 billion in debt service, Pugh says. Its costs are set by that debt, maintenance and fuel. And they are stable at about seven cents per kilowatt hour. But if someone comes into the market at five cents, or six, OUC is in trouble. “If this turns around, it could be devestating to the city of Orlando,” he predicts.

To make power cheaper, the company will have to cut maintenance, cut jobs and effectively shorten the life of the plant. One plant worker we talked to already sees it coming. “I’m looking at the wall,” he says. “I’m going back to school.”

OUC also could let more pollution out of the stacks. Right now, Stanton II, with state-of-the-art scrubbers and electrostatic precipitate ash control, could increase its sulphur dioxide emissions by a factor of six and still be within federal pollution limits. The plants spew about 10 tons of sulphur dioxide into the sky a day, says Pugh; they’re permitted up to 57 tons. Sulphur dioxide is the main ingredient in smog. The secondary pollution controls on the plant cost it about 23 megawatts to run, so by ratcheting up the minimum federal requirements, Stanton could save money. And by burning cheaper, high-sulphur coal, the plant might lower its costs a bit more. But the moves wouldn’t save much. Becht says the utility had to diversify its fuel use from just oil to gas, and had to prepare, long term, both for the growth of Central Florida and the eventual shutdown of several older plants. “We can’t just sit back today and tell out customers, ‘In a few years there’ll be competition and you’ll get power then,'” he says.

He’s right, but it’s just this kind of long-term planning that goes out the window in a deregulated system. Who will pay for new transmission lines? Who will invest in new and cleaner technologies, like solar energy? Who will take responsibility for conservation, which saves everyone on the planet aggravation in the long run? Nobody knows. Right now the biggest power companies in the Midwest – giant, dirty coal burners thought to be obsolete by the 1980s – are poised to take on the lions share of the business. “We want to become the world’s premier supplier of electricity and related services,” William J. Lhota, executive vice president of Ohio’s American Electric Power, the notion’s largest coal-burning company, told The Wall Street Journal recently.

The giant coal burners have joined the big users to push for deregulation; but most of the 180 big investor-owned and state-regulated utilities have joined with the American Public Power Association – 2,800 municipal or county-owned utilities like OUC – to urge Congress to go slow. Some environmental groups say deregulation will finally free ordinary folks to employ rooftop solar, and force the local utilities to buy their excess power. But the environmental groups seem confused about the nature of the market. “Looking out..30 years I give [deregulation] a thumbs up, since it provides the impetus for looking at renewables,” says the Florida Energy Reporter’s Mullins. “With deregulation, the real cost of energy is finally made clear.” How? Utilities will be in such tough competition with each other that government will step out of the picture, Mullins predicts. Eventually, the government will stop subsidizing coal and oil extraction, nuclear power, and other traditional, big-ticket polluters.

Well. All agree that deregulation spells doom for the dangerous, bloated and ridiculously expensive nuclear power industry. So imperiled are the nuclear plants, which produce about 20 percent of America’s electric power, that their owners hired lobbyists to argue only that their $100 billion investment in the plants should be absorbed by ratepayers instead of investors. The Nuclear Energy Institute’s lobby has been pretty unsuccessful so far. California gave them a 100 percent refund. Nationally, the free marketeers are not so sympathetic. Rep. Tom DeLay (R-Tex.) is the majority house whip and the main proponent of a true free market, and he finds himself in an unlikely alliance with consumer leftist Ralph Nader. Yes, it’s a weird world where Nader backs ultra-right-wingers while Bruce Ambler, president of Constellation Holdings, an investment unit of Baltimore Gas and electric, says, “You can’t rely on supply and demand for a commodity like electricity.”

But whatever is going to happen, it’s almost certainly going to happen fast. And it won’t be too good for anyone who owns a small, traditional power plant. Or who works for one. Or who burns just 100 kilowatts a month. So batten down the hatches and stock up on batteries. And if your job depends on a regulated industry, take heart: we may be about to lose thousands of technical and professional positions. But we’re creating more and more opportunities in the exciting field of telemarketing. You can even do it from home. In the dark.


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