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Utility Watch

October 1998 IBEW Journal

AGA Study Sees Electric Rate Climb

The American Gas Association (AGA) predicts that electric rates will increase, over the next 20 years, in 18 states, as a result of deregulation. The study also foresees industrial consumers as the big winners for the same reason that residential consumers stand to lose: market power.

Industrial users have managed to lower their rates over the last 15 years because they can exercise market power. How? By using purchasing large amounts of electricity and using real-time metering and real-time pricing. They have access to interruptible power and, if they choose, can put in their own self-generation or co-generation. As a result, industry can tell the utility what they will pay for their power.

Other conclusions drawn by the AGA study: (1) concerns about reliability will intensify. The report said, "The electric transmission system was designed to move power in bulk from utility to utility and region to region. It was not designed to handle an exponentially increasing number of power flows in every direction to minimize short-run power production costs." And (2) big investor-owned utilities, especially those with low-cost, coal-fired capacity, will be among the biggest winners in the future; (3) marketers will prosper only if they are able to provide value-added services that allow customers to hedge their risks and (4) large commercial customers stand to do much better than smaller customers.

The 18 states cited in the study for rising prices are Idaho, Indiana, Wisconsin, Minnesota, Nebraska, North Dakota, South Dakota, Maryland, West Virginia, Alabama, Kentucky, Tennessee, Wyoming, Utah, Nevada, Montana, Oregon and Washington.

Manipulating the Market?

The electricity crisis that occurred in the Midwest during June, threw several industrial companies into a tizzy when their power was cut off or their electric bills skyrocketed. The concern spread to residential consumers, causing many to question the reliability of the electric system before deregulation sets in.

In the first official complaint filed June 29, Steel Dynamics Inc., asked the Federal Energy Regulatory Commission (FERC) to investigate whether the Midwest’s largest utility, American Electric Power Company, Inc. (AEP), manipulated the market. The company accuses AEP of contributing to the crisis by failing to generate enough electricity, which led to power shortages and price spikes. The complaint raises serious questions about what really happened during the power crisis and the possibility of conflict of interest for utilities. Under state and federal regulations, utilities are supposed to provide power at the lowest possible price to consumers, both residential and industrial. However, companies trading electricity for profit.

Steel Dynamics is not alone in its discontent. LTV Corp. of Cleveland and Timken Co., of Canton, Ohio are reviewing the situation to see if AEP adhered to their respective contracts.

Steel Dynamics has also asked Indiana State regulators to investigate AEP.

Update 
Allegheny Power System/DQE, Inc.

In early April 1997, Allegheny Power System and DQE, Inc., the corporate parents of Duquesne Light announced plans to merge. (See details in the August 1997, issue of the IBEW Journal, "Utility Restructuring," p.12.) Now, the merger appears to be in jeopardy.

The Pennsylvania Public Utility Commission (PUC) accepted a compromise proposal from Allegheny Power to have the merged company sell off some electricity at cost to one or more competitors, ensuring that outside suppliers would have access to the Pittsburgh area market. DQE, however, has concerns about this compromise as well as the PUC’s decision to permit Allegheny to collect only $525 million for stranded costs, not the $1.6 billion the company wanted. Since DQE is in good financial shape, it does not make sense for it to take on Allegheny’s financial problems.

The merger would create the nation’s largest utility, based on kilowatt hours sold. The new company, Allegheny Energy, would maintain a monopoly on distributing electricity to its customers, but would have to compete with outsiders for the right to sell the actual power. Critics argue that by controlling the transmission lines into the region, competitors would be prevented from bringing in electricity to sell. The deal to sell power to competitors was offered to mollify critics who say the two companies are pursuing the merger to maintain monopoly status.

The merger still needs FERC approval.

AEP/CSW Merger: APEC Files Motion to Intervene

The Alliance to Protect Electricity Consumers (APEC), the broad-based coalition of over 30 consumer, environmental, senior citizen, community, industry and labor groups, to which the IBEW belongs, has filed a motion to intervene in the merger of American Electric Power Company, Inc. (AEP); Central and Southwest Corporation (CSW) ; and American Electric Power Service Corporation, Inc.

The motion purports that this merger, and other ongoing mergers, threatens to eliminate competitive energy markets and maximizes profits at the expense of the consumer. The AEP-CSW merger would create an enormous vertically integrated energy company encompassing eleven states, greatly impacting retail electricity consumers by its sheer size. The motion further requests, in addition to its intervener status, that the Commission implement a two-year moratorium on large (one million customers or more) electric utility mergers and apply the moratorium to the AEP-CSW proposed merger.

Another California Proposition

In November, voters in California and Massachusetts will be asked to overturn provisions of their state electric utility restructuring law, AB 1890.

In California, this means sabotaging the provisions of AB 1890, which established a formula permiting utilities to be compensated for past investments in generating facilities not competitive in the new electric market. Proposition 9 changes will severely limit Competition Transition Charges (CTC), which provide for rate reduction bonds to finance immediate rate relief for residential and small business consumers. Proposition 9 would prohibit the issuance of rate reduction bonds, and raises serious questions as to how the bonds already issued would be paid off. CTCs also provide funding for voluntary severance, early retirement, and retraining programs for utility employees directly affected by electricity competition. Since the abolition of CTCs would significantly reduce utilities’ operating revenue, workers most certainly would be affected by reduction of the workforce.

The attack on AB 1890 is a maneuver by people who view utilities as an enemy, and who seek to punish utilities for past investments made in good faith and with full regulatory approval.

AB 1890 was approved unanimously in 1996 by both houses of the California legislature.

In November 1997, the Massachusetts legislature passed the Massachusetts Electricity Utility Industry Restructuring Law. The law was developed over a three year period with input and support from consumer advocates, labor unions, energy providers, environmental groups, policy makers and citizens throughout the state. The new law breaks up the electric utility monopolies; allows competition and consumer choice; reduces electric rates for all consumers by 15 percent and provides important consumer, utility workers and environmental protections.

On November 3, Massachusetts voters will decide whether to keep or repeal the new law. A no vote on Question 4, would undo all the benefits and protections the new law provides and, no one knows if or when another law could be created that would guarantee rate reductions and allow consumer choice. A yes vote on Question 4 will continue the law.