Federal law lets Hagerstown shop for 'power' Municipal utility is one of 2,000 that can hunt for cheaper electricity

July 28, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

As mayor of Hagerstown, Steven Sager has the usual municipal concerns: potholes, taxes and zoning. But he has other things to think about, too: peak-load factors, power wheeling and kilowatt hours.

Hagerstown is one of a handful of Maryland municipalities that own and operate their own electric utilities. When Hagerstown residents pay their electricity bills, they send them to City Hall along with their sewer and water charges.

The arrangement, a vestige of the haphazard development of the nation's electrical grid 80 years ago, puts Hagerstown in the center of today's electrical utility revolution.

Hagerstown's was among 2,000 municipal utilities in the nation that were freed from their captor suppliers by a 1992 federal law. Theoretically, they now may buy power from anywhere in the country, like any other utility.

The offers are flowing like electricity on a hot August night.

Hardly a week goes by that Hagerstown doesn't get mail brochures from "power brokers" and big generation companies offering to cut its costs if it switches from its current supplier, Potomac Edison.

Two suppliers, including Houston-based Enron Corp., have made formal presentations. A consultant has told the city that its new bargaining power should enable it to cut residential power bills, already low, by 7 percent to 17 percent.

"They're starting to come out after us," said Terry Weaver, manager of Hagerstown Light. "We see it as a great opportunity to get power at the best possible price."

Businesses and consumers should pay attention to Hagerstown, industry experts say.

If things go as expected, industrial customers -- and possibly homeowners -- eventually will get the same choices now being offered the city. Four years ago Congress allowed wholesale buyers to wheel and deal for their electricity, and now state and federal regulators are moving toward making retail sales competitive, too.

Competition will cause costs to fall, the reasoning goes. The experiences of Hagerstown and other municipal buyers suggest that the reasoning is correct. "Power shopping" gets new meaning.

"There are guys sitting out there with plenty of excess generating capacity that they're not earning anything on," said Alex Hart, utility analyst with Ferris, Baker Watts, a Baltimore investment house. For customers who can, he said, "there are good opportunities out there" to tap that capacity at a good price.

Industrial customers are salivating at the thought. They buy huge amounts of electricity, but in Maryland they are still bound to local suppliers by state regulations.

The competition for cheaper electricity rates "is something we're anticipating and looking forward to," said Alex Doyle, head of the Maryland Manufacturers Association. "It's probably going to happen. It promises competitive rates. And it probably lowers the rates of the local utilities."

As electricity customers, municipal utilities are similar to large manufacturing operations, said Deborah Penn, assistant executive director of the American Public Power Association.

"The distribution system in Hagerstown and its options are very similar to a large [industrial] customer that's looking for options," she said. "They're both the ultimate customer."

Other municipal utilities in Maryland serve Williamsport, Thurmont and Easton. Like Hagerstown, most city systems don't produce their own power; they have to buy it from someone with a generator. Until recently, the supplier tended to be the nearest privately owned utility.

But federal legislation in 1992 required power-grid operators to act as middlemen for wholesale buyers and sellers, transmitting power generated by third parties for a fee, a setup called "wheeling."

Because regulators consider the city a distributor and not a customer, it is able to shop around for electricity like any other utility.

By switching suppliers two years ago, the little town of Madison, Maine, chopped its electricity bill by more than 40 percent, said system manager George Stoutamyer. With the savings, "we simply reduced rates to our ratepayers," he said. "They're 47 percent less than they were before."

The switch meant savings for a local paper mill of $6 million a year, he said.

"Retail wheeling" for industrial customers won't happen until state regulators allow it and until federal regulators resolve disputes about how much middlemen can charge for carrying somebody else's power.

Supplier choice for residential customers is even further away. Maryland's Public Service Commission has ordered guidelines for industrial wheeling but has rejected residential wheeling for now.

But analysts believe that large Maryland factories will be able to choose their power vendor within two or three years and that Maryland consumers eventually will gain more choice, too.

Hagerstown illustrates another aspect of power deregulation: the growing desirability of "distribution" assets, the capillary-like webs that send electricity to houses, factories and other end users.

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