CHICAGO -- Unless the food industry takes action at the federal level in favor of electric utility deregulation, it could face a patchwork of regulations that differ from state to state, Ulysses Adams, president of Ferndale Foods, Ferndale, Mich., said here last week.
a member of the FMI's Public Affairs Committee.
"For years utilities have been guaranteed a return of up to 15% on their investments -- a return competitive businesses can think about only in their wildest dreams," Adams said. "That fact alone tells me how dramatic the cost savings could be if power companies could compete.
"The real danger is that states will move forward with deregulation before Congress acts. If our industry stands on the sidelines, we could be subject to a patchwork of regulations from state to state."
Michael Sansolo, FMI group vice president, who moderated the Speaks presentation, noted that several states have already enacted deregulation legislation or launched pilot programs to test the practice.
Sansolo said deregulation could reduce operating costs by as much as 20% to 40%, "but the terms [of deregulation in the different states] have varied considerably, and in all cases retailers have not gotten nearly the cost savings that are possible."
"That experience should send a strong message that all retailers need to become more active on this issue," Adams declared.
"We need Congress to pass legislation requiring nationwide deregulation and fair rates for all customers, along with the option to aggregate -- the ability for retailers to pool their power usage with each other and other customers."
According to Adams, aggregating electric bills would make it possible for power companies to treat multiple customers as a single entity, "which could help us leverage our buying in order to maximize the savings."
Many deregulation bills have been proposed, he said, "but there is much resistance, especially from strong special interests, led by the existing electric utilities, that are resisting change."
Adams said he has experienced the value of competition because his two stores use different electric companies. "At my Detroit store, it seems that every time the wind blows we lose power," he said, "while at my store in Ferndale, which is served by a different utility, we hardly ever lose power.
"I would like the option of using my Ferndale supplier for both stores."
He said the Ferndale unit is totally electric at a cost of $10,000 per month, or more than $100,000 a year, about equal to 1% of his total sales, "or approximately my net after-tax profit.
"So a 25% decrease in power costs could bring a comparable increase in profits that would free up funds to invest in new services and lower the cost of food for my customers," Adams said.
Another area where federal, rather than state, legislation is needed is electronic benefit transfers, Adams said. "EBT is moving forward in nearly every state, with two extremely important issues still in question.
"One is the extra costs we may incur to install special equipment and the fees that banks want to impose for each transaction.
"The other is to make EBT systems uniform and inter-operable from state to state -- an issue that affects food-stamp users as much as retailers. If EBT systems are incompatible, consumers may lose that freedom to redeem paper coupons in any state.
"We need to keep up the pressure with Congress, the U.S. Department of Agriculture, regional EBT alliances and systems developers in every state. Wrong decisions now could create cost burdens and technological restrictions that could hurt our industry and our neediest consumers for years to come."
According to Adams, another issue of concern is the Women, Infants and Children program, "where the lack of uniformity is limiting the number of needy people the program can serve because too much money is wasted on administrative costs and regulatory requirements that are different in every state."