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Doug Bechtel
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I was asked by a member recently what the electric industry will look like in 20 years as a result of all of the restructuring that is going on. My initial thought was that I will be long retired in 20 years, and someone else will have to worry about it. After looking back on my comment, however, I realized that not only do I have some thoughts on the future - my thoughts won't even fit into one OPALCOGRAM!
First, OPALCO (like most of the industry) has shortened its planning horizon significantly. We used to plan for 30 years, (the economic life of most of the equipment we buy), but 20 years is now considered a normal planning window. In fact, many utility people feel that their survival depends on the next 5 years - if they don't make it through the short term, they won't be around to worry about the long term. In today's uncertain world, it is hard to make investments that don't begin to show a financial return for 10 or 15 years, let alone 20 or 30.
Ninety percent of the push for industry restructuring is coming from the very large industrial consumers of electricity who see an opportunity to lower their costs. In the global markets of today (and even more so in 20 years), all costs cannot be passed on to the end user because competition won't permit it. When I was manager of an electric co-op in Alaska, I felt that commercial members could bear more than their share of the costs because they could pass those costs on to their consumers in the form of higher prices. At least they could write off what they paid for electricity as a business expense. This is not true in San Juan County. If OPALCO raises rates to our commercial members and they have to raise their prices, they will lose customers to the mainland, and both the business and OPALCO will lose. At the same time, our residential members do not want to pay more so the commercial members can pay less. I think OPALCO does a good job of fairly allocating our costs.
In a similar vein, the price that Weyerhauser can charge for their wood products, that General Motors can charge for their vehicles, and, to a lesser extent, that Boeing can charge for a plane, is set by the competition, not the cost of production.
Right now, these businesses are seeking lower electricity costs. What they will learn over the next 20 years is what recently caused Washington Natural Gas and Puget Sound Power & Light to merge to form Puget Sound Energy: it is not a matter of electric versus gas, it is an issue of energy. Many industrial consumers will find that natural gas and electricity are interchangeable. Over the next 20 years, these very large industrial users will look at reducing costs by cutting out the middle man. By owning their own natural gas supplies and power generation facilities, they will add the profit made in the generation and marketing of the energy they use to their bottom line.
Once this happens, owning the transmission lines that deliver the power becomes the next logical step. If you don't think that will happen, realize that Boeing ended 1996 with over $5 BILLION in cash. There are a lot of banks that don't have five billion in cash. Five billion would go a long way to owning Puget Sound Energy.
If I look 20 years into the future, I predict only 10 to 50 electric utilities left in the country. The exact number will be determined by the number of really large industrial customers who, I believe, will become conglomerates with banking, suppliers, utilities, fuels and raw materials all under their control through outright ownership or interlocking corporate agreements and directorates (similar to the Japanese model of today).
More in the next OPALCOGRAM!
Doug Bechtel
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