Utility Breakups May Mean Savings for Schools
School administrators see the light. And they say its too expensive.
But that may be changing as electricity flows the way of telecommunications and natural gas, two utility industries that have been deregulated over the past decade.
If the nation's K-12 schools get a chance to shop around for their electricity, their yearly $4.5 billion power bill could drop by 35 percent or more, according to some optimistic predictions. Utility costs, primarily for electricity, are schools' second greatest expense, after salaries.
Twelve states have taken action to phase in the breakup of local power monopolies, and more than a dozen states are debating such policies. In addition, federal lawmakers are stepping up efforts on the issue.
"I think that the debate has moved from should we, to how should we," said Andrew Rotherham, a policy analyst for the American Association of School Administrators in Arlington, Va. "There are benefits for all."
Make that almost all. Officials from states with already-low power rates fear that deregulation could raise their rates, shifting them upward toward the national average of about 7.4 cents per kilowatt-hour of electricity. And a handful of states would have to grapple with drops in tax revenue for schools if the utilities picture changed.
"We want people to be mindful of the flip-side of the issue," said Larry Swift, the executive director of the Washington State School Districts Association. "It's difficult to predict the impact on rates."
Power-industry officials see deregulation as inevitable, but want it done on a state-by-state basis.
"We're not working to do away with [deregulation]," said Linda Schoumacher, a spokeswoman for the Edison Electric Institute, a Washington, D.C.-based trade association of 170 investor-owned power companies. "We just don't want the federal government to move ahead with a cookie-cutter approach."
Today, state utility commissions dictate the power rates paid by most schools, as well as the provider from whom they purchase power. That system has caused wide rate discrepancies, especially where consumers bear the brunt of expensive power projects. Northeastern and California schools pay some of the highest electricity rates; schools in the Northwest and Midwest pay some of the lowest.
Schools in Suffolk County, N.Y., pay 15 cents per kilowatt-hour, which puts the power bill for an average high school at $90,000 a year. Elsewhere in New York, schools pay as little as 4 cents a kilowatt-hour.
Suffolk officials have asked the state utility commission for permission to buy power from another company at a 30 percent savings. The request is on hold as the state looks into its own plan for intervention.
"We have people interested in selling to us, but we don't have that authority," said Stanley Packman, the director of administrative services for the Eastern Suffolk County Board of Cooperative Educational Services.
But deregulation opponents say promises of universal savings from an open market, especially one created by federal legislation, are greatly exaggerated.
"If you're in a low-cost state, there's a real chance rates will go up," said Dave Penn, a spokesman for the American Public Power Association, a Washington-based trade group of 2,000 municipal electric companies. "It's no accident that deregulation is happening in high-cost states." He added that deregulation might spark a drop in service to local customers.
Already, a few states offer some form of market choice for smaller power users such as schools.
Under a 1973 Georgia law, local utility companies must compete to hook up new schools. As a result, Northwestern Middle School, which opened last fall in Fulton County, pays 3.4 cents per kilowatt-hour for electricity. Six miles away, Sandy Springs Middle School, which opened in 1972, pays the same company 9.14 cents per kilowatt-hour.
The savings are striking: Between September 1996 and April 1997, Northwestern was billed $34,891 for just over 1 million kilowatt-hours. In contrast, Sandy Springs was billed $78,203 for 855,600 kilowatt-hours.
"Even this limited competition has resulted in significant savings as we bring on new schools," Michael Vanairsdale, the assistant superintendent of support services for the Fulton County schools, told the U.S. House's Subcommittee on Energy and Power last month.
Rep. Dan Schaefer, R-Colo., who chairs that panel, has sponsored a bill that would set a deadline for states to deregulate power monopolies. His subcommittee is set to take up the bill this summer.
"Everything except electricity costs is a negotiable expense for school districts," he said at the hearing. "In the case of electricity, there is no mechanism for schools to shop around for the best bargain."
Power in Numbers
School officials in California, Pennsylvania, Rhode Island, and other states where deregulation laws have passed are scrambling to form purchasing cooperatives.
"It's organized chaos is how I'd describe it," said Tom Solberg, the project director of the School Project for Utility Rate Reduction in Alamo, Calif.
The group, which represents 200 districts with an annual power bill of about $170 million, has tried before to negotiate lower prices with local power companies. "They laughed at us," Mr. Solberg said.
But with California schools able to shop for power starting next January, the group has been courted by power providers from across the country. Mr. Solberg predicts that savings in California will be modest at first, around 10 percent.
Timothy C. Duffy, the executive director of the Rhode Island Association of School Committees, believes that his group may someday negotiate with a single company for gas, electricity, and telecommunications service. "And, if we represent 400 buildings, then we're one of the largest users in the state," he added.
Less Than Charged-Up
But talk of deregulation generates only ambivalence in Ohio, Washington, and other states that fear price hikes or other negative side effects of an open market.
During the April delegate assembly of the National School Boards Association, Mr. Swift of Washington state, where rates are as low as 3 cents a kilowatt-hour, led a debate over federal deregulation.
The group passed a resolution saying that the NSBA "supports the principle of market pricing and deregulation," but opposes any provision that could predictably increase power rates in any region of the country.
In Ohio, school officials have another concern. While Ohio power companies enjoy a monopoly there, their property is taxed at 88 percent of value, compared with 25 percent for regular businesses. But a recent court ruling could lower the power companies' rates to 25 percent as well if legislators pass pending deregulation bills, costing an estimated $257 million in school taxes.
"Deregulation is going to happen," said Warren Russell, the director of legislative services for the Ohio School Boards Association. "But [Ohio legislators] can't do it until they address revenue issues at the local and state levels."