Electric Industry Restructuring
The electric utility industry is vast and varied. It is a $215 billion a year industry with three distinct classes of utility components: investor-owned utilities (IOUs), municipally-owned utilities (muni's) and electric cooperatives (co-ops).
What is deregulation, and how will it effect electric consumers?
For years, electric utilities have been regulated by state and local governments to ensure that consumers receive reliable electric service at affordable rates. Today, electric utilities are in a similar situation to that of the airline, telephone, and natural gas industries, which were deregulated several years ago meaning a reduction of government oversight and increased marketplace competition.
Some states, including California, Pennsylvania and New Jersey, have now passed legislation to deregulate the electric utility industry. Under a deregulated market, consumers can shop around for a power generator. Power distribution, which includes moving power from the transmission grid to the meter, would remain in the hands of the utility that owns and maintains the local distribution lines.
While no definite action is underway in Alabama to deregulate the electric utility industry, most industry experts believe it is just a matter of time. Customer choice will result in lower power costs for all customers, right? Not necessarily. Alabama currently enjoys some of the lowest electricity rates in the nation. As a result, it is not a foregone conclusion that electric retail competition will result in substantial lowering of electric rates in Alabama. There is certainly no assurance that electric rates will decrease for all Alabama consumers. In fact, according to a 1999 study conducted jointly by economists at the University of Alabama and Auburn University, Alabama residential customers will pay higher prices after restructuring the electric utility industry. That conclusion was echoed in a 1999 when the United States Department of Agriculture (USDA) study, which evaluated the effects of electric utility deregulation on rural electric consumers was released. The USDA study concluded that electric restructuring will bring savings to retail consumers, however savings are concentrated in some states, while substantial costs are borne by retail consumers in other states. Furthermore, the study suggested that consumers in the Pacific Northwest, the Mountain States, the Northern Plains, the Mid-South and some Great Lake States will pay more under competition. Simply stated, high-cost states may see savings, but low-cost states, such as Alabama, may see increases as a result of such equalization.
Another threat for residential customers is that industrial customers will shop elsewhere for power, leaving local utilities with a smaller revenue base from which to pay fixed costs such as power plant, transmission and distribution system investments. The result would be higher rates for the remaining residential and small business customers. It is natural to assume that large customers, who can leverage their market power to negotiate low prices, stand to gain the most savings.
What is Riviera Utilities's position on deregulation?
Because most restructuring proposals offer no assurance that all customers will benefit equally, Riviera Utilities and its sister municipal systems throughout the state of Alabama have been reluctant to offer a blanket endorsement of industry restructuring. We believe all consumers should have access to affordable electric service. Any restructuring legislation should require adequate and reliable electric service to all consumers as reasonable rates. Because of that, we believe it is in the public interest first to truly understand the potential effects of electric retail competition will have on Alabama and second to make a decision based upon facts specific to Alabama. Only then will restructuring truly achieve the promise of helping all consumers.
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