Disco concession

Michael T. Burr

Managing Editor

Along with the many other subjects for confusion and disagreement in the restructuring era, a basic question arises: Who will be the distribution utility`s customer in the 21st century?

This question came up during a panel discussion in which I participated at the recent IEEE/PES Transmission & Distribution Conference & Exposition in New Orleans. Some panelists argued that, in a deregulated environment, the distribution company`s customer is really the energy service company, not the electric consumer. The disco will act as a conduit to the energy user, and ESCOs will pay to use that conduit.

If the ESCO is the customer, the end user becomes an asset of the distribution utility. Access to this asset is what the ESCO is buying. Electric consumers will be protected in this arrangement, presumably, because the disco that provides top-notch service for a good price will retain that asset.

This sounds nice, but consumers-i.e., people-don`t fit into an accountant`s definition of “asset”. They can`t be appraised, leveraged, depreciated or sold (at least not in this country). Instead, this definition of “asset” is a touchy-feely term that suits a theoretical argument better than it suits real life. But a regulated monopoly system isn`t real life. Therein lies the problem.

In the real world of capitalism and competition, companies value their customers because they`ll lose them if they don`t. But competition probably won`t become a force among electricity distributors in the foreseeable future, except for those industrial and commercial users ESCOs are already trying to cherry pick.

While distributed generation technology is advancing quickly, it won`t provide a viable option for most consumers any time soon. Instead, they`ll be stuck with discos who think of them as assets rather than customers. As an electric consumer, I think being labeled an “asset” is almost as bad as a “ratepayer.” Both terms highlight the consumer`s powerlessness in the relationship. No pun intended.

Electricity distribution, it seems, is a natural monopoly, and deregulation offers no logical path to competition. Distribution infrastructure is too expensive for new entrants to replicate, and anyway building parallel systems makes no sense given today`s hostile conditions for siting wires.

Maybe competitive forces aren`t necessary to ensure quality service. After all, most people have received basically adequate service under the old utility model. In the future, distribution regulation, wholesale market forces and performance-based ratemaking might create incentives for discos to excel. But maybe there`s a market solution that hasn`t been explored.

An approach frequently used in international privatization programs, especially involving hydropower systems, is the concession model. A concession is similar to an operating license. It grants the concessionaire the right to use a public asset for a specified purpose over a given period of time, after which a review panel determines whether to renew the contract. Usually this is a routine matter, but it gives the public a real stick to wield.

The traditional concession system presents a couple of problems. For example, most concessions involve a long-term contract-30 years or more. So while light shines at the end of the tunnel, it can be a very long tunnel. A shoddy operator might step up its investments and improve customer service just before its concession comes up for review, then go back to slovenly ways after it is renewed.

A long-term concession is logical, however, given the scale of the investments involved. No one would take on such a momentous operation without the expectation of long-term gains. But perhaps there is a solution to this-some kind of a revolving review, allowing authorities to withdraw a company`s concession and compensate it for lost investments, minus some appropriate penalty.

My point is that a concession system would give consumers a voice the disco would be forced to hear. It would acknowledge the monopoly nature of the distribution system, while adding the possibility of competition. While disco employees might not favor the less-certain employment environment, no one should be entitled to permanent and unconditional job security.

Theoretically at least, a concession system would give discos good reason to treat electric consumers as customers rather than property.

Editor`s Note: What do you think? Tell EL&P what`s on your mind about this or any other topic. Email the editor: michaelb@pennwell.com, fax: (918) 831-9834, or call (918) 831-9853.

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