Mr. Kiesner

Eco-Friendly Practices

Government Takeovers of Local Power Companies: Better Service for the Hotel Industry?

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

Iowa is one state where a number of local ballot initiatives are asking residents if their city should municipalize, or more accurately, takeover the role of electricity provider. California is another. And in recent years the question has come up in Florida, Nevada, and New York and elsewhere.

The bait is typically lower prices and greater reliability. But government takeovers can't guarantee either. To make improvements here, we must look beyond local control issues and address the national issues that are affecting the country's electricity system. And this can only be accomplished through comprehensive national energy legislation.

Government Takeovers Pose Risks, New Costs

What the government takeover proponents don't mention is that many factors affect the price of electricity. Government control-of and by itself-will have no bearing on the price of power. The local government can artificially lower the electricity rates, but that only means taxpayers will be making up for it in another way.

In the distant past, when the majority of government-owned utilities were established, cities typically had access to cheap, government-owned hydropower. This ensured a low cost kilowatt-hour.

But today, long-term contracts tie up federal power for decades into the future. A newly minted government-owned utility will either have to buy or build its own power plants-highly unlikely today, given the cost and lengthy process involved-or turn to the country's unpredictable wholesale electricity markets to buy its power-just like the local power company did.

This means the government-owned utility will be facing the same risks. What guarantees can it offer that its power will be cheaper in the future? And when it is faced with higher prices, a government-owned utility may be tempted to shift some of the burden away from residential customers and onto hotels and other commercial and industrial customers.

Besides keeping rates as low as possible, the service you get is also important, especially for large commercial customers such as hotels. The J.D. Power & Associates' 2005 Electric Utility Business Customer Satisfaction Study showed that customers of electric utility companies are more satisfied overall than they were last year. More than 11,000 businesses that spend between $500 and $50,000 per month on electricity were polled on six satisfaction factors: power quality and reliability; customer service; company image; billing and payment; price; and communications. How will the service from a new government-run utility compare?

Taxes are another issue to consider in government takeovers. To buy out a power company's local infrastructure, a city may have to raise local taxes, or perhaps more difficult, redirect money allocated for other projects, such as schools, public roads, or hospitals. And with more than 30 states now facing budget shortfalls, there will be extreme competition for all available revenues.

A municipality's tax revenues also suffer from government takeovers. After the takeover, the taxes and franchise fees that the local electric company paid won't be paid any more. This lost tax revenue adds to the overall cost of the takeover. To recoup those costs, government utilities often seek rate increases, leaving customers to foot the bill.

Beyond fiscal issues, another concern for hotel executives is who is watching over the government-owned utility. With a power company, third parties such as the state Public Utilities Commission and the Public Advocate monitor and control the prices that hotels and other customers pay for their electricity. If a government-owned utility takes over, it will mean the end of independent oversight.

Electricity deregulation is another topic that rarely gets mentioned by government-owned utilities. Currently, 18 states have given residents who are served by electric companies the option to choose their electricity provider. Customers in those states that are served by government-owned utilities, however, are most likely still captive customers. As for changes in the future, most government-owned utilities say they are taking a "wait and see" attitude.

Electricity Demand Continues to Grow

Instead of looking at local government takeovers as a fix for lower prices, we need a new national framework to meet the growing demand for power. Demand has been growing at an average of two percent a year during the past two years. Although this is a bit lower than it was during the 1990s, it continues to rise. Looking ahead, the Energy Information Administration forecasts that in 20 years the nation will be using over 45 percent more electricity than it does today. Demand affects both the price and reliability of electricity.

This underlying growth in electricity demand puts pressure on the country's electricity infrastructure. And this affects all electricity consumers. Switching ownership of the local power company won't address this demand issue. America's power companies are working with federal regulators and legislators to address the country's energy needs for the 21st century.

Federal Actions Begun

A robust wholesale electricity market is essential for cost savings at the retail level. America's electric companies are working with the agency that regulates the country's wholesale electricity market, the Federal Energy Regulatory Commission (FERC), to craft new rules that:

Edison Electric Institute (EEI), the national association of shareholder-owned electric companies, is also working closely with Congress to advance a national energy strategy. The power industry needs a clear direction for the future to continue to provide an adequate, affordable, and reliable electricity supply for its customers.

Among our priorities are shortening the lengthy process for siting and permitting new plants and high-voltage transmission lines. The growing demand for power is pushing the "grid" closer and closer to its limits. A FERC study found that transmission bottlenecks cost consumers in parts of the U.S. more than $1 billion over the past two summers alone. Without action now, these problems will only get worse.

Among our other priorities for national energy legislation are maintaining a diversity of fuel supply options. These include coal, nuclear, natural gas, hydro, and other renewables. The high natural gas prices point to the importance of relying on many fuels for keeping electricity reliable and affordable.

The Role for Hotel Executives

Hotel executives have a resource they can turn to today for more affordable power-energy management. Energy typically accounts for three to five percent of your hotel's total operating expenses. Getting the most value out of every energy dollar can improve your profitability. It will also help the power provider to use its generating stations and transmission lines more efficiently.

Here are just a few quick and easy ways to start lowering your energy bills today:

Power Company Assistance

The local electric company can often be a great resource in helping you take control over your energy use. The power company will likely have historic data about how your energy use has grown. And they may be able to help you save energy through incentives on energy-efficient equipment, discount electricity rate plans, energy audits, or a number of other ways. These all add up to helping you to get more value from your electricity dollar.

Proponents of government takeovers offer false hope for improving the nation's energy situation. The good news is that the initial steps to fix the real issues challenging the country's power industry are being taken. And the best news is that when the journey is complete, the world's premier electricity system will be stronger than ever.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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