Municipal utilities can thrive under deregulation

Electric utility deregulation gradually is taking shape, albeit on a piecemeal basis, beginning with areas such as the Northeast that have traditionally had the highest electric rates. As deregulation spreads, many municipal utilities may be wondering what is in store for them.

In some cases, local or state officials have exempted municipal electric utilities from mandatory requirements to offer retail choice to their customers, deeming that deregulation applies only to investor-owned utilities. But even in such cases, rather than bask in a false sense of security, public utilities must strive to be fully competitive with nearby private utilities.

Under a climate of deregulation, customers may perceive that, without retail choice, they are losing out, and they may demand the ability to choose their own electricity supplier. That loss of market share could drive some utilities under. Consequently, some municipal governments may be nervous enough about the future to consider selling their utilities.

Ironically, the utilities’ own fears about deregulation are causing some to act in ways counter to their best interests. At the risk of degrading services and reliability, many have put off spending money on much-needed infrastructure improvements.

In the face of deregulation’s change and uncertainty, many municipalities must determine whether it makes sense for them to own and operate an electric utility. Each situation must be assessed based on the case-specific facts. Too often, politics or public opinion may build momentum toward a rash decision based purely on unsubstantiated perceptions rather than facts.

Reinforcing the allegiance of the utility’s customers is the first step toward making a fair assessment. Municipal utilities need to consistently demonstrate their value to customers, make themselves indispensable to the community and chart out what services they want to offer in the post-deregulated environment.

If the local utility is to survive and thrive under deregulation, it must focus on four keys to its future:

Strategic assessment. The utility’s management must frankly assess its strengths and weaknesses, develop concrete plans to overcome shortcomings and carefully pick its niche. For example, Energy New England (ENE), Foxboro, Mass., is a for-profit spinoff recently created by a group of Connecticut and Massachusetts municipal electric utilities. ENE will offer products and services to various other utilities.

Convergence. The successful small utility of the future probably will need to offer more than just electricity. Additional options include cable television, Internet access, telephone service and fiber-optic networks. The North Attleboro (Mass.) Electric Department, which has about 11,000 customers, is investing $2 million to install a fiber-optic network within its community for telecom as well as Internet service.

Marketing. More than ever before, electricity consumers are customers, not just ratepayers. A marketing focus will tap into precisely what the customers want and need. Littleton (Mass.) Electric Light Department is a municipal utility serving about 6,000 customers, with the largest 30 representing 60 percent of the total system load. The utility’s new KeyAccounts program focuses on face-to-face relationships, joint planning with customers, power quality assurances, real-time metering and other services.

Reliability. Nothing alienates customers faster than unreliability. Service interruptions, low voltage brownouts and voltage spikes wreak havoc on businesses and consumers alike. Adequate funds must be spent on key system infrastructure improvements to ensure that service reliability is exceptional.

Focusing on those four key areas enables a municipal utility to chart its competitive strategy. On the other hand, if the strategic assessment concludes that a utility cannot be competitive, it will help officials make informed decisions based upon a full examination of their options and all the facts.