POWER TO THE PEOPLE

By John Greenwald

Don't look now, but after shocking the airline and telecommunications industries, competition is about to jolt your sleepy electric company. Just ask Malcolm Buck, a software-support rep whose apartment in suburban Atlanta is wired for phone service, cable TV, high-speed Internet access, and security- and energy-management systems--all flowing through a single cable installed by the Southern Co., his local utility. Buck calls the electric-bill savings alone "pretty amazing."

But listen also to Robin Katz of Madbury, New Hampshire, whose mailbox was choked last year with come-ons from power companies offering everything from cheap rates to light bulbs to spruce seedlings. Says Katz, a recent engineering graduate from the University of New Hampshire: "It was quite confusing."

Amazing and confusing sum up the reaction so far to the rewiring now under way of America's longest-running monopoly--the $200 billion electricity business, an industry larger than either automobiles or telecommunications. The basics are simple: under deregulation plans taking shape in many states, local utilities must open their lines to any power providers that want to ship juice to the utilities' retail customers. For the first time, consumers and companies will be able to pick their electric suppliers as freely as they now choose their long-distance carriers.

Should we be happy about the prospect of telemarketing calls from power companies asking us to buy their brand of electricity--not to mention entertainment and telecommunications services--when all we're trying to do is just make toast? Yes and no. "It's a 50-year jump all at once," says restructuring guru Michael Hammer, who is doing a brisk business in the utility field. "It's not all bad. It's not all good. It's different." When you flip a light switch, you probably couldn't care less where the power was generated, how it was routed or who sends it from the substation to the light bulb. But in the new power game these become "unbundled," discrete businesses. The consulting trade would call it a paradigm shift, because all the rules have changed and the utilities now have to figure out how they are going to survive.

That won't be easy. In the monopoly days, a utility simply passed its costs along to consumers. Now some utilities are saddled with high-cost plants, particularly nuclear facilities, just as lower-cost competitors are moving in. So high-cost outfits like Boston Edison and the New England Electric System in Massachusetts are selling off their generating plants to deliver power produced by other companies. Brash newcomers such as Enron Corp. of Houston, one of the country's largest distributors of natural gas, are buying megawatts of electricity on the open market and selling them around the country. It's called wheeling.

And they're dealing too. Utilities everywhere are forging new alliances. Just last week two U.S. companies, Public Service Co. of Colorado and American Electric Power Co. of Ohio, joined forces for a $2.4 billion purchase of Yorkshire Electricity Group of Britain, another country that is deregulating electricity. There they'll find Central and South West Corp., a Texas-based utility that now has operations in Britain. "We were a highly integrated, lumbering utility," says ceo E.R. Brooks of the bold expansion. "We might as well face the future."

The utilities are free to join the deregulated world of telephones or cable television or whatever. The connection here is that, because it runs a line into your house and sends you a bill every month, the power industry is trying to figure out what else can be sent down, or along, those lines and what more could be made of the "customer relationship." So expect blizzards of power-company solicitations and the prospect of a single, if complicated, monthly statement that might include phone, electric, TV, sewer and water--and why not a bank statement while they're at it?

Also on tap are services designed to enhance plain-vanilla electric power--for instance, controllers that will allow consumers to program just about every electrical appliance in the household for optimal power usage. "Utilities are not born marketers," says Maura O'Neill, the ceo of ConnexT, a Seattle developer of software for energy companies. "They still think in terms of a kilowatt-hour."

Consumers should be prepared, too, for a charged-up debate over the wisdom of tampering with an industry that provides electric power that is among the cheapest and most reliable anywhere (average U.S. cost: 5 [cents] per kW-h, vs. 12 [cents] in Germany and 17 [cents] in Japan). "If I'm in a state with prices below the national average, why do I want to do this?" asks George Dean, chief of the Regulated Industries Division of the attorney general's office in Massachusetts.

Passions are building in Congress over a pair of bills that propose to restructure the utility industry. Arkansas Democrat Dale Bumpers, who wants competition at the retail level by 2003, cites studies estimating that deregulation would trim $20 a month from the average household's electric bill. But objections have been mounting. Some utilities fear losses, particularly since their biggest business customers will be targeted by rivals; environmentalists fret about a possible return to the widespread use of coal, a cheap but toxic boiler fuel; and consumers in low-cost energy states are worried that their power could be shipped elsewhere and their own bills could start rising. "Everybody has a dog in this fight," says Andrew Zausner, a Washington lobbyist who expects the coming battle on Capitol Hill to be "the business equivalent of World War III."

Nonetheless, the power genie is out of its bottle. "The future is here, and the future is competition," says Elizabeth Moler, chairwoman of the Federal Energy Regulatory Commission, which oversees federal utilities regulations. In New England and California, which labor beneath electric rates that are 50% or more above the national average, consumers will probably start shopping for electricity next January. Virtually every other state is considering its own deregulation strategy.

This trend provides rich possibilities for powerhouses such as Southern, which wants to be Northern, Eastern and Western as well. Southern recently teamed up with Providence Energy Corp. of Rhode Island to market electricity and natural gas throughout New England next year, and is eagerly looking for new fields to brighten. Says ceo Bill Dahlberg: "We will take full advantage of opportunities in other states that are opening up their utility markets."

So too will Duke Power Co. of Charlotte, North Carolina, which is acquiring PanEnergy, a Houston marketer of natural gas, for $7.7 billion. "For the past 10 years, we've been running our company as if our customers already had a choice of power suppliers," says Richard Priory, Duke's chief operating officer. The company recently teamed up with Louis Dreyfus, a commodities trading house, to create a venture that will manage utilities like the city-owned electricity supplier in Dover, Delaware. Awaiting local approval is a program to help make the Los Angeles Department of Water and Power, the country's largest municipal utility, more competitive and profitable.

The Los Angeles outfit has its own aspirations. It recently agreed to sell energy at wholesale to a black church-sponsored organization called Revelation Energy Resources Inc., which will retail the electricity nationwide--and thereby give new meaning to the term black power.

Few electric companies can match the Texas-size swagger of Enron, which vows to overpower its stodgy utility rivals. "What other industry in America still sends agents into your home to read meters just as they did in 1935?" asks Enron spokesman Mark Palmer. Enron is putting its money where its boasts are: gearing up for wireless metering and building a billing center near Columbus, Ohio, with the capacity to produce statements for no fewer than--count 'em--30 million customers.

Enron is also running up its own electric bill: the Houston company is paying $3.2 billion to acquire Oregon's Portland General Electric Co. in a deal that will give Enron access to low-cost hydroelectric power, 650,000 customers and an opportunity to go to school on retail operations.

On the other hand, California's Pacific Gas & Electric Co., the state's largest investor-owned utility, is selling four of its eight fossil fuel-powered plants to comply with a state order for increased competition. So the company has gone out of state, creating an affiliate that has joined forces with Bechtel Enterprises to build and operate power plants in 17 states from Oregon to Florida. "In no way, shape or form are we moving away from electric generation as part of our business," says PG&E president Robert Glynn Jr. "We've transformed what years ago was a utility company focused on northern and central California into a national and what is beginning to be a global energy company."

Nowhere has the prospect of deregulation had a sharper impact than in New England. John Rowe, ceo of the New England Electric System, says his company was virtually forced by state officials to put its 18 power plants on the block. "In effect, we were told that in order to get all that we could from our stranded investment [a reference to white-elephant plants and unprofitable long-term power contracts], we should sell off our generation."

In this unbundled world, New England Electric and Boston Edison will become electric companies that no longer make electricity. Rowe intends to focus primarily on energy distribution; Thomas May, the ceo of Boston Edison, wants to become a force in an entirely different business, telecommunications. Boston Edison last year hooked up with a unit of C-TEC, a Princeton, New Jersey, company that provides integrated voice, data, video and high-speed Internet services. May plans to offer them first in Boston and then in the rest of New England. "The utility industry has been growing at 1% a year for the past decade," May says, "whereas the telecommunications industry has shot up 30% a year over the same period." Where would you invest? In the new world of deregulation, power companies are plugging into wherever they think juice is.

--Reported by Sam Allis/Boston, Sylvester Monroe/Los Angeles, Lisa H. Towle/Raleigh and Bruce van Voorst/Washington, with other bureaus

With reporting by SAM ALLIS/BOSTON, SYLVESTER MONROE/ LOS ANGELES, LISA H. TOWLE/RALEIGH AND BRUCE VAN VOORST/WASHINGTON, WITH OTHER BUREAUS