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POWER TO THE MASSES

If New Hampshire's motto is Live Free or Die, somebody forgot to tell the state's electric utilities. Residents pay some of the highest prices for electricity in the country.

That's changing. In a pioneering test of competition, 31 utilities recently swamped the town of Peterborough, N.H., with offers of cheap light bulbs, spruce seedlings, hot-air balloon rides and _ yes _ lower rates for electricity.

High-rate California is going further. The state became the first to pass a law opening the sale of electricity and guaranteeing millions of households a 20 percent drop in their electric bills by 2003.

In fits and starts, competition is starting to jolt the country's last great monopoly _ the $200-billion electric utility industry. In many states and in Congress, lawmakers are considering legislation to allow businesses and consumers to choose where they buy their electricity.

"The future is here and the future is competition," says Elizabeth Moler, chairwoman of the Federal Energy Regulatory Commission.

Some utilities in Florida and other Southeastern states, where rates hover near the national average, don't embrace that federal mantra. They are fighting rapid change.

Tampa Electric parent TECO Energy is so adamantly opposed to "retail wheeling" _ opening up its captive base of business and residential customers to competition _ it's recruiting stockholders to join the TECO Energy Shareholder Coalition to lobby against deregulation.

"We are continuing our strong opposition to the federal government's imposing retail wheeling on all the states," TECO chief executive Tim Guzzle tells shareholders in the company's new annual report.

The threat of opening up an entrenched and sleepy power industry has caught many utilities ill-prepared for competition. Culturally, utilities used to "hire for life" and for decades could raise their electric rates to guarantee profits.

That monopoly mentality is a recipe for failure. Once competition kicks in, high-rate utilities will be put on the defensive.

For consumers, experts say, the good news is that competition generally should make electricity less expensive and utilities more responsive.

The bad news: Competition is piecemeal. States with the highest electric rates are embracing it first. Nationally, electric competition is happening only in the wholesale or industrial electric segment _ the business of utilities selling to other utilities and big corporations.

The worst news: With competition, industrial electric rates are falling. But monopoly-controlled electric rates for residential customers are rising. (See charts.)

"State regulators who see price cutting under way for big customers do not want to see their utilities endangered, so they typically permit the raising of residential rates," says Richard Moroney, who has observed the trend for years as editor of Dow Theory Forecasts. "On average, I think residential prices will keep going up."

Fear of change

Residential rates are a source of great debate.

Florida's big electric utilities argue swift deregulation will force residential rates even higher. Proponents of competition, like Houston's giant electric-gas broker Enron Corp., say partial competition leaves consumers subsidizing lower rates for big business.

Federal deregulation could save U.S. consumers and businesses as much as $80-billion a year, Enron president Jeffrey Skilling says. "If you open the market, costs will come down, and that's for any class of user."

High on Enron's hit list of states resistant to competition is Florida. The company's brokers, called power marketers, are busy scouring the Sunshine State trying to sell cheap power to utilities and lobbying to be allowed to reach other types of customers. The going is tough.

"The physics of electricity is brutally simple," complains Mark Palmer, Enron's frustrated spokesman. "If you put electricity on a grid, it will flow. Electrons don't know the difference between Texas and Florida."

Florida consumers may not pay the highest rates in the country for electricity. But they do use more electricity than consumers in any other state.

So far, Florida lawmakers are responding to pressure from the state's big investor-owned utilities. They say: Change nothing. Legislators last year killed an attempt to get the state Public Service Commission to look at retail competition, arguing that studying retail wheeling was tantamount to implementing it.

Even Florida's geography helps slow change; Florida's long, peninsular shape limits the ability of out-of-state competitors to export power to the state. And the state's electricity grid already is busy carrying power to handle a growing population.

Barring passage of federal law, electric industry analysts don't see much further deregulation in Florida for five or more years.

Loosening the rules won't be easy on an industry so complex and so basic to everyone's lives as electricity. It could make the current deregulation of the telephone business look like a cakewalk.

Already utility mergers are accelerating. Some high-rate utilities in the Northeast fear they may go bankrupt if their customers can soon pick Northwest-based competitors hawking cheap hydroelectric power that sells for a third of New England's prices.

Even environmentalists are wary of deregulation if price competition encourages the rise of coal-fired power plants that produce cheap electricity but lots of air pollution.

Utilities that once plowed billions into nuclear power plants and other big projects _ assured they would recoup their costs _ now fret they'll be stuck with huge stranded investments if customers shop elsewhere. One possible solution: Charge an exit fee to big customers that leave one utility for another.

"The real fear is that competing utilities will cherry-pick commercial and industrial customers because they are very profitable," says analyst Lynn Fryer, who tracks industry trends for E Source in Boulder, Colo. "But who will be left to take care of the little guy, the low-income consumer or the chronic late-payer?"

Fryer worries residential customers won't get any respect in the electricity game until they "aggregate" or combine to gain the economic clout of bigger customers. That could mean organizing under the umbrella of a housing subdivision or even an interest group to shop for power.

After all, she says, retail chains and department stores are shopping for single-source providers of electricity. Why not consumers?

Getting ready

As laws change, utilities are trying to respond:

To pare costs, most have been downsizing for years. St. Petersburg-based Florida Power Corp., whose service territory reaches from Tampa Bay to Orlando north to Tallahassee, thinned its work force from more than 5,800 employees in 1993 to 4,629 at the end of last year. A leaner Tampa Electric trimmed its staff from 1,543 to 1,526 in the past three years.

With the big staff cuts behind, Florida Power earlier this year granted an across-the-board 4 percent bonus to its employees. "It's an effort to show our staff we are acting more like a business now than a monopoly," spokeswoman Karen Raihill says.

To offer customers one-stop shopping for power services, many are merging. Recent deals include North Carolina-based Duke Power's $7-billion purchase of Houston's PanEnergy Corp. or TECO's $300-million acquisition of Peoples Gas.

By reorganizing, some hope to become more efficient. Florida Power last summer restructured into separate units to handle the generation of electricity, the transmission of electricity and the selling of electricity. Others have taken the next step and legally divided into separate companies that can compete less encumbered.

To leverage their power lines into homes and businesses, utilities are developing new services. Florida Progress, which owns Florida Power, and TECO are testing power management systems to help individual homeowners monitor energy costs. Power companies also are dabbling in the fields of home security services, cable TV delivery, telecommunications. And for business customers, they are selling "power quality" _ guaranteeing delivery of precise levels of electricity _ and "power audits" to help trim energy costs.

To boost their image, power giants like Atlanta's Southern Co. are running national advertising campaigns. Enron even advertised about its success in the New Hampshire electricity pilot during this year's Super Bowl. Florida Power recently picked a new ad agency, Tampa's WestWayne, to start building "brand identity" for the Florida utility.

Ready or not, electric competition is coming. Whether it arrives slowly, state by state, or in one sweeping federal package, remains unclear.

In the nation's capital, everyone agrees that the mammoth deregulation effort will be one of the year's most intensely lobbied issues. The Edison Electric Institute, the Washington lobbying arm of investor-owned utilities, raised $3.8-million last year from its members to lobby on the issue and expects to raise a similar amount for 1997.

"Giving consumers choice and breaking up the electric power monopoly will be the premier issue in my subcommittee this Congress," says Rep. Edward Markey, D-Mass., ranking Democrat on the commerce, trade, and hazardous materials subcommittee.

But even Markey, who led the successful charge in the House in the last Congress to deregulate the telecommunications industry, admits injecting competition into the electric business won't be easy.

"Most people still think "retail wheeling' is a business district in West Virginia," he says.

Are consumers subsidizing big electricity users?

With industrial prices under pressure because of deregulation and increasing competition, residential customers are shouldering some of the price burden. For most of the 1990s, the average national price of electricity charged big industrial users has fallen, while residential prices have increased. State regulators generally have permitted electric utilities to raise residential rates to cover the shortfall, says Dow Theory Forecasts.

Electricity rates+

Residential Industrial

1993 8.76 5.58

1994 8.82 5.47

1995 8.84 5.44

+ (cents per kilowatt hour)

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