WASHINGTON (FNS) -- The grocery industry is mobilizing behind a massive effort to deregulate the nation's $208 billion electric power industry, which could save retailers up to half of their electrical costs, their highest expense next to labor.
Deregulation of the electricity industry is touted as the last deregulation frontier now that the telecommunications, trucking and airline industries have been broken up. No interest group wants to be left out of the game. So far more than 200 corporations and associations are working the issue, and coalitions are forming coalitions to ensure that all bases are covered in the mammoth legislative attack.
As one retail lobbyist put it, "This is the largest piece of legislation that will be considered this Congress and it is a pinata for billable hours."
The grocery industry has a great deal at stake in this effort. It's been estimated that deregulation could lead to annual electricity savings ranging from 24% up to as much as 60%, depending on use and location. The greatest savings could occur where rates are the highest: New England, New York, California and parts of the Upper Midwest.
The Food Marketing Institute, Washington, has conservatively calculated that if 24% of power costs were saved by the grocery industry yearly, it would reduce electric power bills by $1 billion nationwide. On a per-store basis, this translates into 11% of a typical supermarket's nonlabor operating costs.
At Spartan Stores, Grand Rapids, Mich., it's estimated that electricity deregulation could result in $500 weekly savings for individual stores, said Mary Dechow, government relations manager. Overall, among Spartan's wholesale and retail stores, annual electricity costs exceed $62 million yearly, and a 20% yearly savings could amount to $12 million in reduced expenses, she said.
Current electricity rate structures are devised to give industrial and residential users the cheapest rates. Retailers and other commercial users, meanwhile, are forced to pay higher rates to subsidize them.
"The electrical utility system was set up when heavy industry was the driving force in our economy, and that is not the case today," said Tim Hammonds, president of the Food Marketing Institute here. "The economy has made the transition and now it's time for the utility industry to make the change."
Tom Wenning, senior vice president and general counsel for the National Grocers Association, Reston, Va., agreed. "Industry is the big dog that gets to buy cheap power now," he said. "Residential costs are subsidized and our objective is to level the playing field so all purchasers are treated equitably and fairly."
Several legislative bills have been introduced in Congress so far and more are expected. A House plan by Rep. Dan Schaefer, R-Colo., would pry open electricity markets by Dec. 15, 2000. A Senate bill sponsored by Sen. Dale Bumpers, R-Ark., would mandate retail competition by Dec. 15, 2003.
House Majority Whip Tom DeLay, R-Texas, in pursuit of a faster deregulation pace, plans to offer a bill that would deregulate the industry by 1998. His measure is bound to aggravate utilities in that it would prohibit them from recovering what are termed stranded costs, a laundry list of expenses that could include bond payments on power plants, decommissioning costs on plants, and any costs that could be incurred if deregulation occurs -- such as employee retraining or restructuring.
These extraneous costs are emerging as one of the thorniest problems in the deregulation effort. The utility industry estimates its stranded costs at $130 billion and maintains that since it was required to build its plants by the government, it should be assured money to pay for the outstanding bonds.
The supermarket industry has maintained that total recovery of these costs is unacceptable and that unregulated activities, such as employee training, should not be reimbursed. Utilities could include so many extraneous expenses in the stranded costs category that they could eat up any savings for their customers, the food industry has said.
The Clinton administration also is preparing a plan. Details of the administration's stance are few, yet Energy Department officials have said they preferred a more cautious approach and were hesitant to set a deadline for states to deregulate. The administration favors removing federal barriers to state deregulation action rather than advocating a federal mandate.
Failing a comprehensive legislative attempt, Rep. Cliff Stearns, R-Fla., has offered a fall-back position in his bill, introduced in January, that would simply repeal the Public Utility Regulatory Policies Act of 1978, which mandated that utilities buy high-cost power from independent operators that generate electricity from alternative energy sources.
The supermarket industry is divided on which approach to take. Kevin Burke, vice president of government relations at the Food Distributors International, Falls Church, Va., said his association, while placing deregulation among its top priorities, is reluctant to sign on to any bill this early in the process.
"We're in favor of our members being able to buy electricity where the rates are the fairest, but at this beginning stage, that's as far as we'll go," he said.
Hammonds said the FMI is favoring Colorado Congressman Schaefer's measure, noting that the deregulatory time frame of opening markets by Dec. 15, 2000, is realistic.
"Schaefer's bill does what we want. It makes clear that the federal government will set the rules for deregulation," he said.
Another important aspect of Schaefer's plan, Hammonds said, is that it permits stores to form purchasing pools to leverage buying power. This would benefit grocery chains that have several stores in a utility's service territory, as well as individual operators, wholesalers and distribution centers who could join user associations.
The pooling approach appears to be working. In a pilot project under way in Massachusetts since the beginning of this year, small retailers that have joined a purchasing pool have reduced their electricity costs by about 25%.
Those that haven't joined pools but are still participating in the pilot project have cut their electric bills from 15% to 18%, said John Hurst, president of the Retailers Association of Massachusetts.
Dechow doesn't think Schaefer's bill goes far enough. She criticizes it for being too general and notes that, at the federal level, specific measures are needed to guide the states.
Instead, she prefers Bumpers' plan. In addition to starting deregulation three years later than Schaefer's, Bumpers' plan would create an independent system of operators, which would manage and operate all the transmission facilities.
The NGA's Wenning said his organization favors the earliest deregulation possible. "Those who favor energy deregulation want to see a time picked for it to happen," he said. "Delaying more than necessary is seen as putting off any savings."
One of the biggest obstacles to swift passage of any measure is the extensive educational effort that is needed among industry officials, so they can explain the need for deregulation, and among politicians, who don't understand the complex issue, it was said.
The FMI, NGA and FDI are mounting grass-roots efforts to educate their members. More than 200 members of the FMI walked the halls of congressional office buildings the week of March 24 to persuade members to back electricity deregulation. The FMI also arranged meetings between retailers and Schaefer in his Colorado district to plot legislative strategy and demonstrate support.
Retailers also are being encouraged to work with their state utility commissions to pursue state deregulation. Industry officials prefer leadership from Congress, however, to ensure consistency nationwide.
"We don't want to see 50 different sets of rules and regulations that could create roadblocks to buying electricity across state lines," Wenning said. "That would defeat the whole process."
One of the biggest coalitions to work on the deregulation effort, which calls itself the Monday Coordinating Group, has created six committees to deal with every aspect of the lobbying campaign.
Currently comprised of retailers and other commercial associations, the group is seeking to recruit the influential seniors lobbying group, the American Association of Retired Persons, to give it added clout on Capitol Hill.
The House Commerce Committee is expected to advance a bill by early summer. Meanwhile, in the Senate, the Energy Committee is conducting overview on whether federal deregulation legislation is needed. Committee Chairman Frank Murkowski, R-Ark., could stand in the way of the retailing industry's efforts, since he has said that federal legislation should only make it easier for the states to deregulate.
Yet the industry is optimistic that it will prevail and that the electricity industry will eventually be deregulated.
"I don't think it's a possibility that it won't happen," said Ron Frost, director of public affairs for Fleming Cos., Oklahoma City. Fleming, one of the largest food distributors in the country, estimates that electricity savings in its 40 distribution centers and associated warehouses could reduce energy costs by 20%.
"Deregulation would mean a great deal in terms of our ability to better manage our operating costs. The savings would be substantial," he said.
