STORES RALLY TO DEREGULATE ELECTRIC POWER
Byline: Joyce Barrett
WASHINGTON — Retailers are mobilizing behind the massive effort to deregulate the nation’s electric power industry.
It’s a move retailers estimate could save them up to 25 percent of their electrical costs, usually their biggest expense, next to labor.
In addition to working on the federal level, retailers are working with individual state public utility commissions to expedite deregulation. States have been the primary overseers of regulated utilities, and moves toward deregulation already are occurring in such states as California, Pennsylvania, Massachusetts and New Hampshire. The federal government needs to step in, however, to insure that state rules are uniform, retailers say.
In all industries, there are more than 200 corporations and associations working on the deregulation effort. One of the biggest coalitions is chaired by John Motley, senior vice president, government and public affairs, National Retail Federation. As it meets on Mondays, it had been calling itself the Monday Coordinating Group, but this month the name was changed to Americans for Affordable Electricity. It has created six committees to deal with every aspect of the lobbying campaign. They include media and message, grass roots and lobbying membership recruitment, policy and technical language, crisis, and state coordination.
Currently comprising retailers and other commercial associations, the group is seeking to recruit the influential senior citizens’ lobbying group, the American Association of Retired Persons, which would give it added clout on Capitol Hill.
There is no doubt that electric power will eventually be deregulated. The big questions are how soon, what role the federal government will play in deregulation and who will be responsible for the billions of dollars in additional costs as utilities are forced to move into a competitive environment — the customers or the utilities.
The biggest savings in electrical costs could occur where rates are the highest: New England, New York, California and parts of the Upper Midwest.
Overall, retailers are forecasting enormous savings in the wake of deregulation.
For example, Kmart’s annual $320 million electricity bill for more than 2,000 stores could be reduced by $80 million, predicted Shawn Kahle, vice president corporate affairs, for the chain.
According to Jenny Keehan, vice president government affairs and special projects for the International Mass Retail Association, Wal-Mart’s $500 million annual electricity costs could be cut by $125 million.
May Department Stores Co. spends about $100 million yearly on electricity costs in its 400 stores nationwide, said energy manager Chris Albrecht. He estimates that savings could reach about 25 percent, or up to $25 million a year. “This is one of our top priorities,” Albrecht said.
May Co. was one of the first major retailers to tackle the deregulation effort when it formed a coalition for energy reform in 1994 with other retailers, including J.C. Penney Co. and Sears, Roebuck, Albrecht said. That coalition has expanded to include the NRF and IMRA, along with practically every major retailer in the country, with the momentum now geared to achieve action in the current Congress.
At Federated Department Stores, Bill Lyon, vice president energy management, predicted that annual electrical costs could go down 20 percent, from about $100 million yearly to $80 million.
Nationwide, the mass retail industry could save more than $1 billion, Keehan said, noting that all electricity users in the U.S., including residential, commercial and industrial users, could save about $80 billion yearly.
Several bills have been introduced in Congress so far and more are expected. A House plan by Rep. Dan Schaefer (R., Colo.), would pry open electricity markets by Dec. 15, 2000. A Senate bill sponsored by Sen. Dale Bumpers (R., Ark.), would mandate competitive selling to final users, such as retailers, by Dec. 15, 2003.
House Majority Whip Tom DeLay (R., Tex.), in pursuit of a faster deregulation pace, this month introduced a bill that would deregulate the industry by 1998. His measure is bound to aggravate utilities in that it would prohibit them from recovering what are termed stranded costs, a laundry list of expenses that could include bond payments still due on power plants, decommissioning costs on plants, and any deregulation-caused costs such as employee retraining or restructuring.
These extraneous costs are emerging as one of the thorniest problems in the deregulation effort. The utility industry has estimated its stranded costs could be $130 billion. One of their arguments in justifying recovery is that since they were required by the government to build plants large enough to accommodate given areas, they should be assured money to pay for the outstanding bonds.
Retailers have maintained that 100 percent recovery of these costs is unacceptable and that unregulated activities, such as employee training, should not be reimbursed. Utilities could include so many extraneous expenses in the stranded costs category that they could eat up any savings for their customers, retailers have said.
Howard Martin, senior manager of government relations for J.C. Penney, likened the recovery of stranded costs to the predicament retailers find themselves in when they buy a product that does not sell. “If I buy bad merchandise, I have to take a markdown,” he said. “Utilities are unrealistic to think they can recover all of these costs.”
The Clinton administration also is preparing a plan. Details of the administration’s stance are few, yet Energy Department officials have said they preferred a more cautious approach and were hesitant to set a deadline for states to deregulate; they have indicated they preferred to remove federal barriers to state deregulation action rather than advocating a federal mandate.
Failing a comprehensive legislative attempt, Rep. Cliff Stearns (R., Fla.) has offered a fall-back position in his bill, introduced in January, that would simply repeal the Public Utility Regulatory Policies Act of 1978, which mandated that utilities buy high-cost power from independent operators that generate electricity from alternative energy sources.
“We want deregulation as soon as possible,” said Motley of NRF. “We’re paying too much now, and the longer it takes, the more we will pay.” Motley said he prefers to see all rates — residential, commercial and industrial — deregulated simultaneously.
Martin said that if simultaneous deregulation can’t be achieved, he preferred to see residential rates reduced first, because of the increased spending power it would give consumers.
Schaefer’s bill appears to be drawing the most support, primarily because of its timetable — which advocates feel is realistic — and because it would permit stores to form purchasing pools to leverage buying power. This would benefit retailers with several stores in a utility’s service territory, as well as individual retailers and distribution centers who could join user associations.
The pooling approach is getting good results as part of a deregulation pilot project under way in Massachusetts, where six power suppliers are competing for the business of customers in four towns. The Retailers Association of Massachusetts created a purchasing pool of its members in the towns to see how the pools would work. The small retailers that have joined the pool since the start of this year have reduced their electricity costs by about 25 percent. Those that haven’t joined the pool but are still being supplied under the pilot project have cut their electric bills 15 percent to 18 percent, said John Hurst, president of the Retailers Association of Massachusetts.
“We are convinced this is working,” Hurst said.
Kmart also is participating in a purchasing pool. Last year Detroit Edison initiated a 10-year contract with Kmart to provide the retailer’s Troy headquarters and 76 Kmart Michigan stores lower rates. The agreement is projected to save the retailer $3 million over 10 years.
Deregulation is expected to be a reality in California in January 1998. Federated already is exploring alternative suppliers of energy but has not yet decided whether to join a buying pool.
“It’s too early,” Lyon said. “We’re waiting until later in the year to see how things are structured. But it’s a full-time job getting our company ready for deregulation.”
One of the biggest obstacles to swift passage of any sort of deregulation legislation is the extensive educational effort that is needed among retail officials, so they can explain the need for deregulation, and among politicians, who don’t understand the complex issue. The industry has its own jargon, perhaps more than other issues that come before Congress. Information packets distributed by NRF include 14 pages of definitions to such terms as watt-hour, wholesale wheeling, substation, spot price and real time meters.
The House Commerce Committee is expected to advance a bill by early summer. Meanwhile, in the Senate, the Energy Committee is conducting oversight on whether federal deregulation legislation is needed. Committee chairman Frank Murkowski (R., Ark.) could stand in the way of a federal deregulation effort since he has said that federal legislation should only make it easier for the states to deregulate.
“Unless and until it can be proven states are not acting in their consumers’ interests, I see no reason for the federal government to step in and override them,” he has said.
Kmart’s Kahle said she prefers to see the federal government act first on electricity deregulation. “It’s difficult dealing with many different public utility commissions,” she said.
“The federal government could set some direction and guidelines on stranded costs that would meet the needs of big customers like us,” Kahle noted.
The utilities are divided on congressional deregulation efforts. The Partnership for Customer Choice, which represents eight utilities from Pennsylvania to Portland, Ore., is backing deregulatory efforts on Capitol Hill.
The group also is backing a plan introduced recently by House Majority Whip Tom DeLay (R., Texas). Partnership coordinator Bernie Schroeder said in a statement that DeLay’s measure will send a message to the utility industry: “Either get behind a federal bill guaranteeing customer choice or risk losing some very important provisions regarding stranded costs.”
Schroeder charged that other utilities are “playing Russian roulette with its ‘Just Say No’ strategy.”‘ The utility industry should be unified in its efforts so it doesn’t lose any benefits is already has, he said.
The Edison Electric Institute, which represents 200 utilities that provide about 75 percent of the nation’s electricity, is opposing federal deregulation efforts and instead supports state efforts.
The Institute so far is not supporting any bills pending on Capitol Hill, primarily because it is insisting that utilities be permitted to recover all stranded costs. An Institute spokesman threatened that if DeLay’s version were passed and utilities could not recover stranded costs, “a flood of litigation” would follow.