Electric Utilities Join The Telecom Fray
MEET your new Internet company. It's your old power company.Skip to next paragraph
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Some of America's regional electric utilities have started down the road to becoming diversified companies that sell everything from television programming to software and phone services - including Internet access.
The threat of competition from unregulated power generators and the deregulation of the telecommunications business is causing utilities from Texas to California to re-examine their businesses. About a dozen are following a model pioneered by the Glasgow Electric Plant Board, a municipally owned power company in Glasgow, Ky.
In 1989, the town of 14,000 began upgrading its ability to manage energy consumption. The town installed 120 miles of cable connecting every home and business to the utility, so energy use can be monitored and managed on a real-time basis. But this task requires only a fraction of the cable's capacity, so Glasgow's residents can also receive cable TV, phone, and Internet services on the same wire.
Laying such cable is expensive. But it allows utilities to do away with meter readers, immediately diagnose power outages, and most important, generate and distribute power more efficiently. It does this by putting premium prices on power during peak usage times. A utility can charge more for electricity at 5:30 p.m., when usage surges, than at midnight. By encouraging customers to switch off appliances at peak hours, the utility avoids building new power plants. Such "load management" can't be done if customers have ordinary meters that are read on site just once a month.
Last year, Dallas-based Central & South West Corp., a publicly traded holding company that owns four electric utilities in Oklahoma and Texas, joined the cable-laying trend. About 850 homes in Laredo, Texas, are participating in a pilot program that, next to Glasgow, is the largest in the country. The company eventually plans to have some 2,500 homes connected to its fiber-optic network.
Challenges for utilities
High up-front costs aren't the only hurdle to making these experiments pay off. Some utilities lack the expertise to make their new communications ventures work, predicts Rob Frieden, a communications expert at Pennsylvania State University.
Still, "utilities have one of the keys to the kingdom: conduits and rights of way that have value when installing fiber-optic cable," says Mr. Frieden, who is also an industry consultant. He sees synergies between the communications and the electric industries. "Transporting bits [of digitized data] is very much like transporting kilowatts."
"With this type of system, you get operation and maintenance efficiency," says Bret McCants of Central & South West (CSW). "You can do remote connect and disconnect of customers and you have better customer service because there is more information available on each account. On the other side, there are capital savings because you can delay investment in generation, transmission, and distribution."
The connection allows CSW's customers to reduce utility bills, and the high-speed connection will eventually give them an alternative source of information services. CSW plans to begin providing Internet access to homes over the next few months and the company is talking with two local phone companies about a cooperative venture.
Also in Texas, municipally owned utilities in Austin and San Antonio are considering fiber-optic systems.
Pacific Gas & Electric, based in San Francisco, is testing a system in 50 homes that allows customers to program their home appliances through the Internet. Instead of laying its own cables to do this, PG&E is leasing those owned by a cable TV company. Steve Phillips of PG&E says "customers can bring up heating and cooling schedules, set schedules for vacation, and schedule lighting for evenings or while they are away."