City Councilman Steve Leal Has An Electrifying Proposal.
By Dan Huff
IF YOU FIND it annoying all those phone companies are calling you during dinner to yak about their confusing long-distance services, just wait until January 1, 1999.
That's when it becomes legal in Arizona, under the banner of deregulation, to push electrical power the same way they're hyping phone services today.
But when it comes to electricity, Tucson City Councilman Steve Leal has a simple idea that just might discourage a few telemarketing types from targeting Tucsonans:
City government should buy power on the wholesale market for anyone--governmental, residential or commercial users--who want to sign up, he says.
Surprisingly, Alan Bunnell, a spokesman for Tucson Electric Power, an organization apparently giddy with the idea of free-market competition, isn't at all critical of Leal's idea.
Sometime ago, Leal began looking into the idea of the City of Tucson and other local governmental entities--Pima County, Tucson Unified Schools, Pima Community College, and others--coming together to buy power.
"The City of Tucson [governmental functions] uses about $18 million worth of electricity a year," Leal says, adding city officials have managed to negotiate a pretty good rate with TEP.
"Together, all local public entities use about $60 million worth of electricity," he says. If all local governments were buying power at the city's rate, the cost would be about $52 million, Leal estimates.
But then he realized the utility business is a zero-sum game--if local governments chopped $8 million off their power bills, that fiscal load would just be dumped onto the backs of other ratepayers.
"When Tucson Water had some meters subsidized at 50 percent of the real costs, where did they get the rest of their money?" he asks. "From a higher rate they charged the rest of us."
Not a cool cause for a vote-conscious politician to champion.
So Leal did more research on the ins and outs of the coming deregulation and discovered--hey, maybe we could all save money!
"We could easily go out on the western power grid and buy electricity wholesale, and then pass the savings on to everybody in the community," he says.
After talking with consultants who know the business, Leal thinks the city could buy power wholesale at three-and-a-half to four cents a kilowatt hour. "The city's currently paying about six-and-a-half cents," he says, "while the average consumer is paying 10 or 11 cents."
By the time you add in what the power types call "stranded costs," or overhead, Leal thinks the average ratepayer would be forking over six-and-a-half to seven cents a kilowatt hour under his buying plan.
On the individual level it doesn't sound like a lot of savings, but Leal points out the entire community of Tucson--governments, businesses and residents--currently buys about $600 million worth of electricity a year. If we're all suddenly saving 25 to 33 percent, that would free up between $150 to $200 million in the local economy--a whopping load of cash.
Cash, he predicts, that would ripple across small and large businesses alike.
"It would help just about everything," Leal predicts. "And the other big benefit of lower rates is that we'd have a better chance attracting high-tech manufacturing firms, for whom power costs are a significant part of overhead."
More money, more jobs--what could be wrong with that?
Perhaps not much, judging by TEP's even-tempered reaction:
"What we're seeing across the nation is that residential consumers are banding together to ensure they not only get quality, reliable service, but also receive the lowest competitive prices for the energy they buy," TEP's Bunnell says.
Sure, but do TEP brass think Leal's suggestion is a proper role for city government?
Amazingly, Bunnell doesn't seize on the opportunity to rant about government meddling in the marketplace: "That remains to be determined," he says calmly. "With deregulation we're entering into a market that's never been tested before."
In fact, judging by Bunnell's smooth handling of questions about Leal's proposal, TEP seems to be eagerly anticipating deregulation--a process which had disastrous consequences for the airline industry in the 1980s.
TEP's apparent confidence may be due to its involvement with California-based New Energy Ventures, Inc. Founded in 1995, the privately held New Energy is currently the nation's leading buyers' representative in that untested marketplace of deregulated power.
New Energy, which is opening offices across the country, buys power wholesale on behalf of its retail clients. Last week it delivered the nation's first deregulated power to a metal-finishing company in Rhode Island, the first state to deregulate.
TEP put in $3.5 million worth of startup cash, and now has an option to buy 50 percent of New Energy for $1, an option TEP will probably exercise sometime this month, Bunnell says.
And yes, he adds, local businesses will soon be free to buy their power from New Energy. Of course we can all continue to buy from TEP, too:
"We truly believe our rates will be competitive, and we look forward to proving that to our customers," Bunnell says.
Should it come down to a tug o' war among Leal's city-based plan and TEP or New Energy, the real bone of contention will undoubtedly turn out to be those stranded costs, the only subject which causes Bunnell to stumble.
At first he tells a reporter TEP has not estimated its stranded costs, which must be factored into consumers' monthly bills--regardless of where they buy their power, it will still be delivered via TEP's wires, and someone will still have to read the meters.
Then he admits the company has filed confidential documents with the Arizona Corporation Commission detailing its stranded costs.
Finally, Bunnell points out that in addition to slashing its workforce by about 25 percent, or 225 people, during the last year, the company last month renegotiated its coal contracts downward, reducing those stranded costs by as much as $200 million.
"We're definitely going to be prepared for deregulation," he says. "When the market opens up in 1999, we're going to be at the forefront as a competitive leader."
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