Utility market changes, local government and the role of GIS
Q. Are municipal energy providers different from other utilities in such a way that they are
insulated from threatk of competition ?
A. Municipal utilities may have legal protections which will, to some extent, insulate them from
competitive initiatives being undertaken at the federal and state level. This insulation may occur
where the municipality operates under a state constitutional structure that precludes legislative
changes which will expose the municipal utility to competition along with other utilities.
However, in those cases, it can be expected that the municipal utility will also not be allowed to
compete for other load or to annex additional territory without opening up its own territory to
competition; this is the so-called “reciprocity” requirement.
Beyond this, municipal utilities face the same economic threats which other utilities encounter.
For example, large customers are clamoring for lower rates to help them become more
competitive in their own right. As cost curves and the size of generation stations drop, at some
point more and more end-use customers will have the option of leaving the system. A number of
energy production technologies which are close to marketability will certainly allow for strip
mall, if not cul-de-sac, energy systems. This poses significant issues for city planners while it also
imposes on municipal utilities the same threat of bypass and self-generation that other utilities
face.
Accordingly, while the municipal utility needs to position itself for the competitive future, it may
be limited in its attempts to retain load and actually maybe precluded from pursuing new load
outside its setvice territory. This leaves the municipal utility is a precarious position, particularly
since the U.S. Department of Justice Antitrust Division has taken aggressive steps to limit
municipal utilities from using so-called “tying” arrangements to attempt to force continued
purchases of electricity from the municipality itself. Thus the municipal utility must look
creatively to retain market, unbundle services which it currently provides (such as meter reading
and billing, distribution services, backup and reliability services), price such services
appropriately, and identify new services and products which it is uniquely qualified to provide.
GIS can help the municipal utility identify customers, customer characteristics, and facilities in
ways to identify retention and market potential. After all, success can be measured by how well
the utility knows its market, its customers, its competitors and itself.
An IOU or a municipal utility must understand itself thoroughly. Executives must know where
their company’s facilities are, what those facilities’ current maintenance or repair status is and
whether or not they can handle an expanded load. Modeling programs using GIS data can
quickly assess the impact of new loads. Business geographies allows that information to be
shared across a utility’s many departments to ensure customers are well served.
A utility must also be able to assess who its competitors are, what their strengths and weaknesses
may be, where their facilities are located, who their customers are, and what their short- and
long-range business goals may be. Much of the information lies in written documents available
to the public, or can be culled through commercial sources of business geographies applications.
Competitor information easily lends itself to analysis and incorporation into a geographic analysis
system.
Finally, a utility must have customer information. The information definitely must include
consumption and usage patterns, but is also should include the core business geographies
applications, such as demographic information, household income, lifestyle trends and related
data types, which are available from various commercial outlets. Gathering and analyzing such
information will help utility marketing staffs target new products and services at customers--
pinpointed by business geographies--who are most likely to buy them.
Q. Municipal utilities have rights-of-way to which competitive p/ayers in other industries wil!
want access. How can the rights-of-way themselves-- and access to them--be controlled?
A. As utility services open to competition, congestion in and around publicly-platted municipal
rights-of-ways will increase. In addition, there will be more requests to share or gain access to
the structures of the municipal utility.
To the extent that managing facilities maybe conducted through GIS, the management function it
self will pose a unique revenue opportunity for the municipal utility through, for example, the
sale of access to information. Ultimately, the GIS may represent a significant revenue center for
the municipal utility, which will help eliminate uneconomic duplication of facilities, and will
help maintain reliable service.
Q. What are the ihctors driving the spate of current efforts to create unique municipalization approaches?
A. Many efforts are underway around the country to create a “municipal” entity of some sort for
the provision of electric service. The principal driver for such efforts is the Energy Policy Act of
1992 in which Congress
the transmission system.
subdivisions of the state,
transmission system.
competition in the provision of wholesale power by opening access to
In doing so, Congress made it clear that municipalities, as political
could avail themselves of this opportunity to gain access to the
The law’s major caution to the Federal Energy Regulatory Commission (FERC) was that it should
not grant transmission access for what are known as “sham municipal” transactions. The Energy
Policy Act also made it clear that the FERCcould not authorize retail wheeling, leaving that
option to the states. Many states already have begun to investigate issues related to retai I
wheeling, direct customer access, and energy industry restructuring. As those developments
continue to unfold, other entities have launched aggressive efforts to utilize the federal
authorization of “municipalization” to further wholesale transactions.
A less frequently discussed, yet still plausible, competitive positioning issue is the potential
privatization of a municipal utility. Such an issue involves many challenging issues including
amending municipal charters and managing any political fallout that may occur. Nevertheless,
deployment of GIS technology can help fil I two primaty roles: to assessthe competitive threats,
opportunities and potential viability of a privatization, and to make the system more attractive to
privatization enterprises.
Q. Everyone knows what a kilowatt-hour costi, and we are Iearning what ancillary services cost
at wholesale but how do we know what distribution wires cost or how much ancillary services
cost retail?
A. The electric utility industry has had a long tradition of providing bundled services at a
bundled price that is adequate to cover the revenue requirement and provide a “profit” for the
utility. In electricity, as in telecommunications under the long-ago AT&T umbrella, the need to
offer--and price--discrete services and products was virtually nonexistent.
All that has changed.
At the federal level, the FERC has embarked on an aggressive “wholesale” unbundling of services
and products, unbundling generation from transmission and ancillary services from transmission
and generation. Currently unresolved is how to price transmission, whether it be a “postage
stamp” rate for the entire system (one price fits all), zonal, distance based, or some other form. In
addition, considerable discrepancy exists over what ancillary services actually are and how they
should be priced.
As difficult and confused as this effort is at the wholesale level, it is doubly difficult at the
distribution level, given the complexity of engineering and the entirely different array of ancillary
services; for example tree trimming. These may not be as sexy as “voltage support” at the
wholesale level, but they are just as important and must be priced correctly if competition is to
develop over the local wires. The distribution system has unique cost drivers at the geographic
level, which when coupled with system planning, control and operations, and modeling, can
provide a unique basis for pricing wires and services.
To the municipality and the municipal utility this is significant. First, as with any local
distribution provider, pricing the wires and ancillary services “correctly” is the first step to
ensuring cost recovery and to avoiding uneconomic system bypass. Second, it provides a basis
for managing access to facilities and structures for other competitive industries. The municipal
utility and the municipality itself have the ability to earn and learn from other industries and can
deploy GIS in support of such efforts.
Q. What are the broad implications to the municipal uti/ity posed by the current merger
mania?
A. One key issue posed by the competitive future of the electric industry is how existing
providers can cut costs and expand service offerings over the same fixed cost base. Many utilities
are aggressively pursuing mergers with neighboring utilities or are considering hostile takeovers as
remedies. Where does this leave the municipal utility?
Most of the symmetries of a merger occur when neighboring systems merge and the systems are
interconnected, both physical Iy and administratively. Municipal systems in general have not
been pursuers of merger opportunities. Such a strategy often would mean losing the municipal
identity and related fiscal support. In other cases, there simply is no neighboring municipal
utility with which to merge. However, new models have developed around the country where
municipalities and distribution cooperatives have entered into joint ventures for service provision
and where investor-owned utilities and municipalities have pursued joint venture arrangements.
Ultimately, to consider the viability of a merger, it is important to know the nature of
interconnection, the compatibility of resources--physical, human and information--and the
efficiencies to be gained. The GIS platform is critical to such analysis and should be deployed
accordingly.
Q. What is driving the convergence of services in the communications and electricity
industries, and what role does it suggest for the municipality?
As with merger mania, “convergent” mergers, which create new alliances and business
relationships between diverse utility service providers, will require unique information sets to
understand the true symmetries of such convergence. These mergers wil I be driven by customer
characteristics, market segmentation, and efficiencies, as wel I as the interconnection of physical,
human, and information resources. Ironically, the municipality has been the traditional point of
convergence for local distribution infrastructure services, typically for electricity, water, waste
water, and trash removal, among others. Accordingly, municipalities are uniquely positioned to
evaluate the synergies of other convergence. The municipalities’ long tradition of considering
development of GIS platforms which will handle the information exchange and needs of multiple
infrastructure industries should position municipal utilities for the competitive future.
