February / 2000
From the Editor

The tools of competition
by:  

  An issue looming large for electric co-ops in the Kentucky Legislature is known by the unwieldy term "affiliate transactions"-the ability of electric co-ops to get into other businesses in addition to selling electricity.

  The ability to offer nonelectric services is especially important today. Debates continue at the state and national level over whether to deregulate the electric utility industry. In order to remain competitive and effective businesses, utilities must offer needed services, and establish close ties with their customers. Those ties can help lessen the chance that customers will choose other suppliers of electricity if the industry is restructured. Without those strong ties, the business is undermined. Large urban utilities are able to sell other services by setting up holding companies that control several businesses. That's not practical for smaller, local, not-for-profit co-ops. And in rural areas, service options can be much more limited than in cities.

  So electric co-ops are setting up affiliated businesses to offer services like local Internet access and home security systems. These are services requested by the co-ops' customer-owners. One of the most logical areas for co-op involvement is other forms of energy. Some electric co-ops are changing their names to energy co-ops to reflect involvement in propane gas and other nonelectric energy services.

  This has put local co-ops at odds with some other area businesses. Propane dealers and heating and cooling contractors have organized at the national and state level to try to keep co-ops and investor-owned utilities from offering customers anything other than electricity unless additional regulatory steps are taken. Some of these proposals are so restrictive that electric utilities may choose not to offer the services.

  The proposals to restrict co-op competition center on two issues: (1) "cost allocation," which seeks to prevent the electric utility business of the co-op from subsidizing nonelectric services, and (2) "code of conduct," which prevents the co-op from using its name, employees, or other attributes in promoting the affiliate services.

  Several reasonable cost allocation rules are already in place. Co-ops don't want electric rates to subsidize other businesses and have policies to provide that safeguard. In fact, this kind of cross-subsidization is prohibited by the state Public Service Commission. But the restrictive measures being proposed by some interests in the legislature would make it extremely difficult for co-ops to get into any other business, no matter how much their consumer-owners need it.

  The code of conduct proposals call for a similar kind of overkill. Co-op employees wouldn't even be able to mention an affiliated business. The proposed restrictions would create an unnecessary and cumbersome tangle of red tape.

  Co-ops need to grow and to be competitive in order to offer their consumer-owners services they need and want, at the best price and highest quality. It's the essence of their mission of promoting a high quality of life for all Kentuckians. The ability to offer services in addition to electricity is an essential tool in that kit. That's why they're working to defeat proposals that would make them less competitive while supporting a reasonable approach to the issue.