Competition is the major concern of electric utilities

Issue 2 and Volume 99.


Douglas J. Smith,

Senior Editor

Competition is the major concern of electric utilities

Since passage of the Public Utilities Regulatory Policies Act (PURPA) in 1978, the United States? regulated electric utilities have faced continuing competition from unregulated independent electric power producers. Passage of the Energy Policy Act of 1992, particularly Title VII, opened the door further to competition from the unregulated sector of the industry.

According to the Washington International Energy Group, Washington, D.C., competition is the major concern of this country?s regulated electric utilities. In response to a survey conducted by the Washington International Energy Group (Figure 1) the top five issues of concern to electric utilities are:

1. Competition

2. Retail access and sales

3. Open wholesale transmission access

4. Improving revenue and earnings

5. Loss of industrial customers

Respondents to the survey are not only concerned about the competitive pressure from non-utility power producers but they are also worried about competition from other regulated electric utilities. A majority of the electric utilities surveyed believe there is a high probability of price wars developing between competing utilities. Should price wars develop, these same respondents say that there is a possibility that an electric utility might launch a pre-emptive strike against utilities intending to approach their customers.

Wholesale power markets

Competitive power markets together with deregulation have increasingly become key areas of concern among chief executive officers and senior management of regulated electric utilities. Resource Data International (RDI) Inc., Boulder, Colo., reports that there has already been a tremendous amount of change within the electric power industry since signing of the Energy Policy Act in 1992. RDI suggested that this is evidenced by:

Y The Federal Energy Regulatory Commission?s efforts to mandate access to transmission

Y The rise of a new breed of power marketers

Y Financial brokerage firms redesigning their criteria to account for increased competition

Y Several states considering retail wheeling issues

OAs the dynamics of an open market begin to unfold, electric customers at all levels will begin to exercise their options and demand a competitive marketplace,O according to RDI. New opportunities in wholesale markets abound for aggressive companies who have efficient generating and adequate transmission resources.

According to RDI, the winners during the next decade will be those companies that:

Y Embrace the competitive market

Y Have goals to operate more efficiently and are willing to cut costs

Y Are willing to develop creative cost saving services for customers

Y Have a strong understanding of the competitive world around them and, in particular, their neighboring system

Currently, the United States has approximately 200 investor-owned utilities, but only a few of these companies have traditionally dominated the electric power markets. However, since passage of PURPA, and the Energy Policy Act in 1992, many more companies have entered the market. Today there are more than 3,000 companies actively involved in the wholesale power market.

Bulk power purchases currently account for more than 25 percent of all electric operating and maintenance expenses among investor-owned utilities, according to RDI. In 1980, purchases of bulk power accounted for less than 14 percent of the total investor-owned operating and maintenance expenses. Figure 2 shows the bulk power purchases by investor-owned utilities through 1992. END

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Figure 1. Important issues of concern to electric utilities. Source: Washington International Energy Group, Washington, D.C.

Figure 2. Bulk electric power purchases by investor-owned electric utilities through 1992. Source: Resource Data International Inc., Boulder, Colo.