Power Play

Potential deregulation could revolutionize energy industry

Imagine a time when you can buy your electricity from the cheapest vendor much like you purchase long-distance telephone service today.

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Platte River must prepare for the retirement of 431 megawatts (MW) of dispatchable, coal-fired generation by the end of the decade and address more frequent extreme weather events that can bring dark calms (periods when there is no sun or wind).

It’s not far off.

Under proposed deregulation of the power industry, a variety of power companies could offer you deals on your electric service. Vendors could come from the next state or from clear across the country.

However, some power-company officials warn that deregulation may hurt Colorado customers while bringing down costs in the northeastern United States.

A driving force behind the push for deregulation of the power industry is the disparity of electricity costs around the country. The Northeast now pays the highest price because much of its power is furnished through nuclear-power plants that are expensive to operate — partly due to safety regulations.

But the Northwest, including Colorado, has the lowest power costs because many hydro facilities were built here in the 1940s through the 1960s, and these plants are cheaper to operate, said Thaine Michie, general manager of the Platte River Power Authority, which supplies electricity to Fort Collins, Loveland, Longmont and Estes Park.

Some studies have found that the difference in electric bills for a customer in the Northeast is about seven to eight times the amount charged to a similar customer in the Northwest.

“If competition opens up, we’ll be able to sell to the higher-cost market,” Michie said.

He anticipates that deregulation would result in averaging electricity prices throughout the country so that those customers who have paid less in the past will pay more and customers who have paid more will get a break on their electric bills.

Much of the wholesale side of the electric business has already been deregulated in recent years, Michie said.

However, wholesalers such as Platte River still can’t sell to end-use customers but must go through a local utility distributor.

“The next step is to sell to the end-user,” he said.

With “retail wheeling,” the distributor is bypassed so that the wholesaler can sell straight to the end-user, who would then pay a rent or lease fee for the power lines from the distributor, he said.

“You could shop for a supplier,” he said.

For the last 10 years, Platte River has been marketing its surplus power, so it is already in a good position to compete, Michie said.

“Our goal is that in two years, our costs will be in the lowest quartile of energy costs,” he said. “We think that when competition comes, we’ll be ready.”

The company is identifying markets that it would want to compete in under deregulation.

“We’ve been positioning ourselves to be more competitive,” he said.

On the federal level, U.S. Rep. Dan Schaeffer, R-Colo., has introduced a new bill that would give consumers the power to choose their electric service by Dec. 15 2000.

Dana Perino, Schaefer’s press secretary, said the bill addresses only the deregulation of the generation portion of electricity, not distribution or transmission, which are natural monopolies.

“What you can have are competing suppliers of electricty,” she said.

In this scenario, customers throughout the country could choose their electric supplier. That would result in improved customer service and product innovation, she said.

Perino said the proposed bill leaves the matter of how to deregulate the industry up to each state, but “there must be reciprocity between states,” she said.

Schaefer is the lead sponsor of the bill and chairman of the House Commerce Subcommittee on Energy and Power.

Although some power company officials say they welcome the prospect of deregulation of the electric industry, others fear that residential customers will wind up paying a steeper price for service while commercial customers negotiate advantageous deals.

Several business groups are urging the state Legislature to approve “retail wheeling” – a process in which the power companies that actually generate electricity can compete for customers and transmit that electricity over existing utilities’ distribution lines.

In February, the Colorado Legislature killed three bills dealing with promoting competition and ensuring consumer protection of how the retail electric market is restructured. However, one bill sponsored by Sen. Dave Wattenberg, R-Walden, advanced in the legislative process.

Wattenberg’s bill would establish a two-year study of electric-utility deregulation issues. The Senate energy panel forwarded the measure to the Senate Appropriations Committee.

Ron Carey, general manager of the Poudre Valley Rural Electric Association, said the utility supports Wattenberg’s bill, noting that it appears to be a prudent way to study the issue.

“Residential customers are at risk in terms of being able to participate fairly in deregulation,” Carey said. “They’re not going to have the clout to negotiate lower rates.”

Under the present system, the state’s Public Utilities Commission acts as a watchdog on power-company rates to make sure the companies don’t overcharge, he noted.

Although many industry observers assume that electric rates will fall if the industry is deregulated in Colorado, “that may not happen. Our rates may go up as our cheaper power gets shipped to other parts of the country,” Carey said.

Carey said the small-business and residential customer will be the ones to suffer from deregulation because large industry will be able to negotiate better deals.

“In most areas of the country, industrial groups are pushing for deregulation,” he said. “It’s not a public issue. It’s an industrial issue.”

Another critical issue in the deregulation controversy is how the transmission grid will be structured and electricity shipped from the generator to the customer. Proposed bills in the Colorado Legislature have not addressed that issue, he said.

Carey noted the two major power outages that occurred in the West last summer and said the root of that problem is deregulation.

“Utilities are downsizing. They’re not building generation like they used to. They’re relying on generators from further distances, and they get overloaded if there’s not enough local generation,” he said.

Outages such as the massive ones last summer are likely to continue unless the industry restructures and focuses more on local generation, he said.

The reliability of power reception also could be damaged through deregulation if suppliers quibble over which company is responsible for maintaining transmission lines, he said.

Mark Severts, a spokesman for Public Service Company of Colorado in Denver, said the company probably would continue to handle most of the distribution of electricity within Colorado if the industry is deregulated.

It’s too costly and inconvenient to rewire homes and businesses after deregulation, he said.

Public Service Co. serves about 75 percent of the state.

“We fully anticipate the electricity arena will be deregulated, but when it happens is anybody’s guess,” Severts said. “It is being driven by the marketplace, which we think is very positive.”

He said the company supports changes in the industry that will result in fairness to all customers “so the residential customers don’t pick up the tab for the industrial customers. We welcome it, and we think it will benefit our customers.”

Public Service Co. is an investor-owned private corporation. Other types of power companies include rural electric co-ops that were started initially to serve outlying areas.

Another type of power company is the tax-based municipal utility such as Fort Collins Light & Power, a 63-year-old company that supplies electricity to about 100,000 customers in the city, said Rich Shannon, general manager of the company.

“We’re eager to participate in a competitive environment,” Shannon said. Even though Fort Collins Light & Power is a small player compared with other power companies, it has an edge on price and quality of service, Shannon said.

“We’re the fifth-lowest (priced) of the 52 utilities offering electricity in the state,” he said. “We’ve made good choices in our sourcing, and our cost of power is low.

“In the service arena, we know we’ll be able to excel,” he added. “As a local company with local employees, we have a good track record.”

Shannon said he expects the state’s power industry to be deregulated and become a competitive market within the next five years. He anticipates the competition will resemble the market that has developed in the telephone industry.

Bob Barley, facilities engineer with Symbios Logic Inc. in Fort Collins, said he’s concerned that power deregulation could result in the same type of hassles for businesses that developed from the deregulation of the telecommunications industry.

Noting that it’s become more difficult to obtain service in the telephone industry because of the wide array of suppliers, Barley said he is skeptical of the benefits that could be derived from deregulating the electric industry.

Dealing with several suppliers to obtain power could be a big hassle for industrial customers, he said.

Symbios Logic, a semiconductor manufacturing company, is a huge electric consumer. Using Fort Collins Light & Power as its supplier, the company has an annual usage of about 24 million kilowatts of electricity, he said.

In the company’s manufacturing process of integrated circuits, it utilizes high-temperature furnaces, Barley said. “When you generate all that heat, then you have to cool it off for the people who work there,” he said. “The infrastructure is very expensive to duplicate, so they’ll lease it out, and there will be different suppliers using the same transmission lines.”

Pete Webb, spokesman for Anheuser Busch Co.’s plant in Fort Collins, said the plant purchases its electricity through the city of Fort Collins from the Platte River Power Authority. Last year, it used 74 million kilowatts of electricity.

The company currently has a long-term contract with the supplier for perpetuity, Webb said. “It’s the only supplier there,” he said.

The Anhueuser Busch plant is very power-intense, and competition in the power industry could affect the plant, he said.

“The impact of deregulation depends on the savings that could be achieved. We may have to explore an alternative fuel strategy if prices went up,” he said.