Utility market changes, local government and the role of GIS
David A. Reece
Executive ConsultantlDirector UGC Consulting 6200
S. Syracuse Way, Suite 222 Englewood, Colo. 80111
(303) 773-6166, (303) 773-6618
James P. Spiers
Consultant/Attorney JP Spiers Co. 3335 19* Street Boulder, Colo. 803045
(303) 442-4733, (303) 742-1947
Abstract
Local governments are in an increasingly difficult position given the rapid evolution of the utility
industries to competitive markets. With this evolution, municipalities: 1) are losing tax base
through utility reductions in force/downsizing, 2) are likely to lose tax base as utility plants are
written down, and 3) are likely to lose occupational fees/franchise fees for utilities authorized to
operate in publicly platted rights-of-ways. In addition, municipal utilities: 1) will be challenged
for customers, 2) will need to be more sophisticated in how they price their services and products
and 3) are sharing rights-of-ways with a variety of new entrants. Municipalities have the
opportunity to creatively deploy geographic information systems to meet these chal Ienges.
Managing multiple service offerings with other municipal enterprises will require new
information systems. GIS is particularly well suited to provide this information base. The paper
outlines strategies for how municipalities can manage access to their physical plant through GIS.
It describes how municipalities can couple GIS provided by various utility/services providers with
other physical infrastructure information of the municipality to ensure the delivery of
management services throughout the infrastructure. It also addresses critical issues of maintaining
equity in an era of explosive growth in sectors of the uti Iities industry.
Q. What strategies are available to municipalities which fke the possible loss of tax revenues,
franchise fees/occupational fees and other income as a result of changes in the utilities
industry?
A. Local governments are in an increasingly difficult position given the rapid evolution of the
traditional monopolistic utility industries to competitive markets. With this evolution,
municipalities: 1) are vulnerable to losing tax base through utility reductions in force/downsizing,
2) are vulnerable to losing tax base as utility plant assets are written down, and 3) are vulnerable
to losing occupational fees/franchise fees for utilities authorized to operate in publicly platted
rights-of-ways.
For the incumbent local municipal utility, its future is equally difficult as it braces for
competition. Municipal utilities: 1) are going to be challenged for customers, 2) are going to
have to be more sophisticated in pricing services and products, and 3) are sharing public rights-of-
ways with a variety of new entrants to the competitive utility services industry.
In addressing these issues, local governments have the opportunity to creatively deploy
information technologies and geographic information systems. For example, although a
municipality may stand to lose sources of revenue in the competitive future, it also may be able
to require those desiring access to the public rights-of-ways to provide it with a geographic
information system (GIS), or funding for such a system. This information base will help the
municipality better manage access to its physical plant. Ultimately, the municipality can couple
the GIS provided by the utility and/or services providers with other physical infrastructure
information systems to ensure the infrastructure is managed efficiently and effectively. To the
extent the municipality has such a GIS in place for right-of-way access, it should price its
infrastructure or right-of-way management services at the fu II cost of service, and not on an
incremental basis.
Municipal utilities face the same issues as other distribution utilities in the competitive future.
These issues include retaining existing customers, attracting new customers (using techniques
other than rate breaks), developing new territory and pricing “unbundled” services. All of these
are relatively new functions. In addition, the municipal utility may choose to couple its service
with other municipal services to provide packages to customers. This wil I help control costs of
services (for example, by consolidating the number of meter reading or service technicians) and
will add value to service offerings (for example, by providing building audits for energy and water
consumption or by undergrounding multiple utility facilities). This type of strategy is being
adopted by a number of investor-owned utilities (IOUS), which are positioning themselves as
energy services providers, not just electric or natural gas utilities.
Managing multiple service offerings with other municipal enterprises will require new
information systems, as will pricing unbundled services, particularly for “wires” services.
Because of its spatial nature, GIS is particularly well suited to provide this information base
within the geographic setvice area of the municipality.
Q. What are the implications of competition for municipal utilities and how does G/S create a
roadmap to a more competitive future?
A. The profound changes facing regulated utilities are being accelerated principally by two
economic factors.
First, customers are concluding that they want their energy commodity priced at marginal cost
and not at the utility’s embedded cost. What this means is that the economic cost to the
customer of bypassing the network by opting for self-generation, for example, is becoming low
enough to make that option a reality. What this means is that increasing numbers of customers
are comparing the relatively expensive cost of “central generation stations” with the relatively
inexpensive cost of new generation.
Second, the traditional central generating station economies of scale in the electricity industry
have been replaced by development of smaller generating units. These can be deployed on
shorter lead times and with less “lumpiness” than large-scale units which often see a portion of
the unit remaining idle for some time until it is needed. In other words, the range of energy
resources that can be deployed to meet customer demand is wide. What’s more, these resources
can be sited far more flexibly than the central station. This diversity allows the energy provider to
supply “differentiated” services and products that were impossible in an era of central station
generation.
Along with this increased diversity of resources is the growing understanding and desire among
customers to have some choice in provider, service, product and pricing. Price has been a
primary focus for many. AS competition emerges in the electricity sector, that singular focus is
understandable in the short run. In the long run, however, it is naive at best as most consumers
make market choices based on a number of personal factors, of which price is only one.
To the savvy municipality, these dynamics represent a unique opportunity. Because cost curves
have not yet fallen to the level where most consumers wil I be able to shop the electric system,
current economics and scale lend themselves to a community-based level of utility services.
Accordingly, municipalities should exercise considerably more control over the energy services it
receives from the incumbent utility.
For example, for areas undergoing economic development and as part of its ongoing land use
planning efforts, municipalities may choose to require land set-asides for distributed generation
(such as fuel cell technologies), and zoning to encourage “sustainable” development (for
example, building with an east/west orientation and encouraging tree planting).
The need for an information system which will facilitate and perpetuate such development is
critical. As noted previously, the municipality--as a condition to granting access to its right-of-way--
should require that service providers fund or provide in-kind a geographic information
system that will support such land use management.
For the municipal utility, the opportunities are equally good under a competitive scenario. As
with any local distribution company, the need for the municipal utility to effectively price its
wires is paramount; so is the need to manage access to its facilities by competitive providers in
other industries. These aspects, coupled with the municipal utility’s need to plan and deploy
distributed and dispersed resources that are closer to the customer and more directed to meet
discrete customer needs and wants, will require additional sophistication in the information
system. This wi I I be faci Iitated by integrating the customer information system, SCADA, power
flow modeling, work order management and outage recovery on the GIS platform.
