What is electric power worth?

Is it 3.875¢ or almost 17¢?
     We surprised a Canadian audience in November with a report that you could buy retail power in the US for less than 4¢ in Dalton, Ga -- forgetting to note that some of that power comes from a share in a nuclear plant.
     During 2003 those who buy 1,000 kwh were asked to pay almost 17¢ for the same amount of power (1 kwh) in San Diego.
     Neither price is close to the US average price of about 8¢ -- a figure skewed and bloated by political agendas of state regulators.
     Yet both San Diego's high and Dalton's low prices seem to be set by political bodies -- the city councils.
     Not so, says Don Cope, Dalton CEO.
     Dalton prices are set by the muni's board that operates independently of the city council.
     It's the board of Water, Light & Sinking Fund Commissioners created by Georgia's General Assembly in 1913 "specifically to preclude political influence in the operation of the utilities," Cope added, including setting prices.
     Members are appointed by politicians but the independence is underscored in the legislation.
     Dalton's 3.875¢ "is not artificially low," he stressed.
     It seems extremely low because the utility has a high concentration of large-volume industrial customers -- high load factor customers providing Dalton with scale and impressive, competitive industrial quality in markets.
     One amazing twist is that Dalton's management has in the past invested money so wisely that retail prices are lowered by earnings from those investments, Cope explained.
     What kind of investments?
     "Government treasuries and the things we're allowed to invest in," Cope replied.
     He hasn't heard of other munis who've gone that route.
     Here's how they use the profits.
     Power revenues are 52% of the utility's revenue stream. Thus they take 52% of the profits from the aging investments and apply it to electricity operations.
     Natural gas revenues are 19% so that 19% of the investment profits go to natural gas. The other services are water and wastewater.
     But telecom revenues aren't subsidized by the investment profits since they compete with private enterprises in that arena and are not allowed by law to cross subsidize.
     Communications services include broadband, point-to-point connectivity, fiber to the home and business including internet, telecom and cable TV.
     The utilities turn back to the city a figure that some operations would call profit -- the excess of revenues over cost.
     Dalton Utilities pays either 5% of gross revenues or $6 million -- whichever is greater -- to the city.
     A lovely story.
     Cope spent 30 years in the US Navy and ran a nuclear plant but was picked when he was running the Chamber of Commerce, not for his nuclear knowledge, he told us.
     During 2003 Dalton's retail price rose for those buying 1,000 kwh to 4.324¢ as of the Oct 1 survey of JEA, formerly the Jacksonville Electric Authority.
     In San Diego, the 15.3¢ of a year ago rose to 16.5¢ in October. The Jan 1 figures are about to be published.
     But the question remains:
     What is power really worth?
     In Georgia we believe it's worth a bit over 4¢ because that's how the law would have it. In San Diego it's worth 16.5¢ because that's what lawmakers say it should be worth.
     Could San Diego's lawmakers learn somehow from Dalton how to lure industries and "economies of scale" by lowering prices?
     Somehow, there just must be a better way. The first step would be for San Diego people to awaken to the absurdity of their prices. If the public demanded good prices, they might just get them.
     Let's watch what the new governor does this year.  (Story originally published in Restructuring Today 1/5/04)