PREPARING FOR NEW YORK'S CHANGING POWER STRUCTURE
BY ALLEN L. THURGOOD,
CHIEF EXECUTIVE OFFICER1ST ROCHDALE COOPERATIVE NYC
Since April, 1998, New York State has been phasing in a retail choice program for all consumers of electricity. Residential customers and small businesses can now switch from Con Ed to an alternative electric service company (ESCO) at any time, while large commercial and master metered accounts will be able to choose new providers starting in early 2000. New federal and state regulations are forcing traditional electric utility companies to restructure their operations and open their territories to competition. In the New York City area, Con Ed will continue to furnish transmission and distribution, but new companies can supply the generation; that is, the actual wattage that flows into the homes and businesses of retail customers.
Just as the breakup of AT&T in the early 1980s brought a plethora of long distance telephone service providers, the new rules governing electric utilities will create opportunities for many new ESCOs. Eventually they will compete with one another on retail prices, as new laws allowing such competition are phased in.
1st Rochdale Cooperative NYC is one of 13 new electric service providers in New York City, but the only one that is a cooperative. 1st Rochdale is owned and governed by its customers, now numbering thousands of households, businesses and institutions in the five boroughs and Westchester County. It was incorporated in 1998 by a well-established coalition of New York City housing co-ops. The entire board of directors consists of long-time New York residents who are leaders in the city's cooperative housing community. Our residential and commercial customers who have signed on since we launched operations on April 1 are a diverse base, running the spectrum from low-income to luxury housing, office towers, and commercial businesses.
NEGAWATTS NOT MEGAWATTS
As a not-for-profit cooperative, 1st Rochdale aims to lower members' total energy bills through comprehensive energy management, as well as develop energy conservation and generation strategies and renewable energy sources. We work with building management and homeowners to maximize their property values with highly efficient generation of electricity and state-of-the art telecommunications. We use the word "Negawatt" as an operational goal referring to negative megawatts, or megawatts that the customer never has to use.
In the past few months, 1st Rochdale has begun to diversify into additional products and services. Competitively priced natural gas and heating oil services will be available starting this winter. We have also become a system operator for DirecTV, a satellite television subscription package that is delivered through master antenna systems that respect the home rule authority of co-ops and condominiums to control the proliferation of systems on their property. We will soon be expanding our telecommunications to Internet access and community computer networking, and are working with multi-family building customers to enhance the market value of properties through telecommunications infrastructure improvements.
MAJOR CHANGES IN THE INDUSTRY
The new ESCO's are a result of two decades of technological, social and legal changes in the electric utility industry. The law that created utility monopolies in the first place, the Public Utilities Holding Company Act (PUHCA) of 1935, actually sought to curb corporate monopoly abuses of utility market power. At the time PUHCA was enacted, Congress reasoned that, by virtue of their ability to make huge capital investments in expensive generating facilities, one large company could produce power more economically than a group of competing firms. While the act kept the utility business in the hands of large companies, it also stipulated that utility holding companies could not diversify beyond their core business and limited their geographic domains.
Efforts at deregulation began after the oil crisis in the 1970s. The short supply of oil led to double-digit inflation and higher energy prices. As a result, the utility companies themselves found that their own costs were rising beyond what they could reasonably expect to pass on to Customers. The Public Utility Regulatory Policies Act (PURPA) signed into law in November
1978, required state commissions to order utilities to develop new rate structures. One minor provision of PURPA required that utility companies purchase power from industrial companies that produced electricity as a by-product of other activities. That provision opened doors to entrepreneurial companies that generated electricity from solar cells, wind turbines and other renewable (non-fossil fuel) sources.
It now appeared that non-utility companies could produce power at least as cheaply as regulated firms could. In 1996 the Federal Energy Regulatory Commission (FERC) ordered electric utilities to let outside companies use the utilities' transmission lines, opening the way for new energy service providers to compete with large investor-owned utilities. Under new federal laws that include the Energy Policy Act of 1992 and FERC's 1996 Implementing Regulations, the actual means of moving electricity through power lines will remain regulated to avoid costly duplication of infrastructure, but the production of electricity by power plants, hydroelectric dams and other means is being deregulated.
New York is one of several states in which the Public Utility Commission has issued comprehensive restructuring proposals that will allow new companies to own the generating facilities. Under the plan, 1st Rochdale will be able to purchase a percentage of its power from suppliers other than the local monopoly, and will make bids to acquire generation facilities. Over time, the New York State Public Service Commission will eliminate all price regulations governing the suppliers of electric energy.
CHANGE AND THE CONSUMER
The new regulations will not automatically translate to reduced costs for electricity consumers. While large industrial customers have the volume business and the bargaining clout to negotiate the lowest rates from their electricity providers, residential customers might find that some ESCOs don't really want their business, and are able to discourage them through high prices or indifferent service. According to reports from the National Consumers Law Center in Washington, DC, some investor-owned electricity suppliers have said outright they would not take on low-income customers who pay special reduced rates for power. The opportunities for new, entrepreneurial providers have also opened the doors to fly-by-night operators, and retailers conducting pyramid schemes. There have also been reports of "slamming"--the practice by which a customer finds himself switched to a new supplier without his consent. For all of these reasons, consumers will need to look out for reputable, customer-friendly ESCOs. On the bright side, the changes in the industry will pave the way for electricity providers to develop new technology that generates electricity at lower costs and addresses consumer needs in the next millennium. As power outages over the summer proved, we are using more electricity than was ever anticipated when existing grids were created over 100 years ago. 1st Rochdale is engaged in efforts to develop new sources of generation.
EMERGING ALTERNATIVE ENERGY TECHNOLOGY AND MANAGEMENT
Some of our customers are now using small generation units that are installed near the point of usage, sometimes on the roof or in the basement. This type of system is known as distributed generation. We are planning a test project of fuel cells that will be on line by the end of 2000. Fuel cells, which are expected to be available commercially in New York State around 2001, operate in a similar way to batteries. Highly environmentally friendly and efficient, they transmit about 40% of the energy they produce to the customer. The technology revolves around a chemical reaction between hydrogen and oxygen that produces both power and hot water. The police precinct in Manhattan's Central Park started using a fuel cell for the precinct building on May 1 of this year.
In another pilot project, 1st Rochdale has plans to install a microturbine generator at the East Midtown Plaza housing cooperative in Manhattan. Microturbines use natural gas to produce energy and to heat water. Both microturbines and fuel cells recycle the power and hot water that they produce.
1st Rochdale. in an agreement with the U.S. Department of Energy (DOE) and the New York State Energy Research and Development Authority (NYSERDA), is sponsoring a feasibility study of photovoltaic, or solar, energy systems for two multi-family apartment houses. We are also involved in an effort to convince New York City's Department of Housing Preservation and Development (HPD) that the installation of similar solar energy systems should qualify the residence for a property tax abatement under Section J-51 of the city tax code.
THE POWER OF COOPERATIVE CONNECTIONS
The reason 1st Rochdale is able to develop new technology and services while keeping retail costs down is that the company keeps its own overhead low by consolidating services with other cooperatives. Cooperative companies are governed by seven principles designed to foster synergy and democratic partnerships, including a principle stipulating that cooperatives should help other cooperatives. There are well over 1,000 electric co-ops in the U.S. today, serving over 30 million consumers in rural areas and small towns. These cooperatives sprang up in the 1930s to provide electricity in remote parts of the country, and today they are aligned together by several cooperative organizations. 1st Rochdale is the first urban member of the 60-year-old National Rural Electric Cooperative Association (NRECA), the oldest and largest national service organization dedicated to representing the interests of cooperative electric utilities and their members through education and legislative efforts. 1st Rochdale is also a partner in Touchstone Energy, (a nationwide cooperative alliance of electric utilities that provides a unifying brand name and a uniform set of service standards. Touchstone Energy (also provides its members with access to research, advanced technology and other energy resources and services). North Carolina Electric Membership Corporation in Raleigh, the second largest electric generation and transmission cooperative in the U.S., is now providing 1st Rochdale with wholesale power supply, backroom operations and some marketing functions. Through these and other cooperative alliances, we expect to create economies of scale that will enable us at 1st Rochdale Cooperative NYC to offer a wide range of services at the fairest possible prices.
You can contact 1st Rochdale Cooperative NYC on the Web at www.1stRochdaleNYC.net or call 212-673-3900 ext. 1.