Electric Restructuring Heating Up; Customers Will Benefit
An OpEd piece for CharlotteBiz Magazine
Bill Coley
Group President
Duke Power
To the casual observer in the Carolinas, electric deregulation over the past few years has resembled a well-watched geyser. The subject has heated up from time-to-time, caused some noise—and then appeared to cool back down again.
But despite the on-and-off tendency of the issue, electric restructuring is gaining ground across the U.S. and is becoming a “front-burner” issue here in the Carolinas. At the end of 1999, 23 states had decided to introduce competition to the electric industry in their respective areas. Competition has already begun in 12 of those states, with the other 11 expected to begin in the next few years. With that background, it stands to reason that competition in some form will also come to the Carolinas.
Done correctly, electric restructuring should be beneficial for both customers and utilities. As we’ve seen in other industries, competition can spur innovation, give customers more options and speed new products to market—all of which should be welcome in the electric industry.
On the surface, electric restructuring looks pretty simple: “Give customers a choice of electrical suppliers.” But the task isn’t as simple as flipping on a light switch. Regulators and legislators in both states are right now weaving through the complexities of the issue—trying to craft a framework that treats customers, companies and investors fairly. Remember, the current regulated state in the electric industry has been with us for more than 70 years.
Also, the issue is packed with stakeholders. In North Carolina alone, there are about 100 different utilities when you combine the investor-owned, state, municipal and cooperative utilities. But in fairness, regulation and the crowded field of participants haven’t done too badly. For example, Duke Power’s electric rates are 15 percent below the national average and are lower today than they were in 1987. Not many companies can say that.
In today’s regulated environment, electric utilities (such as Duke Power) have a public-service obligation that comes with the legal right to serve customers in areas assigned by state regulators. Utilities build, operate, maintain and repair facilities to provide electricity to customers. Utilities in the Carolinas set rates in various ways. Duke Power’s rates are set by the North Carolina Utilities Commission and the South Carolina Public Service Commission.
The key task before the two states right now is how to unwind the highly regulated order of the present system in a way that delivers benefits to customers without causing future chaos. As a customer, what should you be on the lookout for? Here are a few items:
New Players in the Mix - Anytime a new market opens up, new entrants jump in. The power plant business is one area worth following. In the traditional sense, power companies generate power and then sell it to their customers in their assigned service areas. But why can’t other companies focus solely on the wholesale generation of electricity—without having retail customers? Duke Energy is already doing that in other states such as California and Connecticut. The company is operating efficient power plants that generate power at lower prices than many local companies can produce it themselves. These “merchant plants” don’t have guaranteed set rates; they don’t make money unless they can produce electricity at a competitive rate. Customers benefit since their local electric company can shop around for the best price—lowering costs for everyone.
This movement is already taking hold in North Carolina. The Texas-based firm Dynegy is building a power plant in Rockingham County, N.C. It will sell power to Duke Power, and also to other electric utilities in the region.
New Options and Services - Buying electricity today is a no-frills task. Sign up ... get power ... pay the bill. But in an era where other companies are trying to persuade you to switch suppliers, who knows what will happen? Companies could bundle extra services together to offer customers—home security, internet service and even frequent-flier miles for every dollar spent on energy. Around the country, some companies offer “green” power—customers pay more for energy that is generated using renewables, such as hydroelectric generation. Customers will need to become more savvy to sort the good deals from the ones that just sound good. It will be comparable to what consumers face today in buying long- distance telephone service. I expect Duke Power to continue offering reliable and affordable electric service - building on the 2 million customers we now serve.
For Carolina business owners, this new era of competition may be of benefit to you. Energy companies may package together energy services for customers. For example, an energy service company may supply electricity, provide maintenance for your electrical machinery or secure other energy products like chilled water or compressed air. In some deregulated areas, Duke Energy is doing this, too. There are many energy services beyond simply delivering kilowatt-hours.
Rates - Up or Down? - I wish I could give you a definitive answer to that question. The cost of generating electricity is still dependent on the cost of fuel (like gas and coal). But in practically all industries, more competition is good for customers. Competition in the electric industry opens up choices for customers. It allows efficient companies to grow and expand. As in all competitive markets, there will likely be winners and losers. Duke Power is positioning itself to thrive in this new environment. As Fortune magazine’s Most Admired Gas and Electric Utility for the past two years, we are confident about our future performance.
I am confident that customers will have the opportunity to be winners as we in the Carolinas sort through the variety of issues surrounding electric restructuring. It is not a simple process, but we can learn from, and build on what’s been done in other states to create a fair, equitable system. The current regulatory structure of the electric industry has built an efficient, reliable and affordable infrastructure—the envy of the world. Our job is to take it to the next level—to continue to deliver the power that drives the economic engine of the Carolinas.
