Recently, the Senate Commerce Committee approved “The Telecommunications Competition and Deregulation Act of 1995,” which included the following provision:
“Notwithstanding any other provision of law to the contrary*…*an electric, gas, water, or steam utility, and any subsidiary company, affiliate or associate company of such a utility other than a public utility holding company that is an associate company of a registered holding company, may engage, directly or indirectly, in any activity whatsoever, wherever located, necessary or appropriate to the provision of telecommunications services, information services, other services or products subject to the jurisdiction of the Federal Communications Commission under the Communications Act of 1934, or products or services that are related or incidental to a product or service” listed above.
One may reasonably ask why, in a bill promoting telecommunications competition, would electric, gas, water and steam utilities be singled out for special mention. This article provides an overview of some of the reasons utilities are interested in the pending debate on telecommunications reform.
Catalysts to competition
Utilities are uniquely situated to play a key role in the rapid development of a National Information Infrastructure by acting as “catalysts to competition.” While many utilities are not prepared or equipped to compete head-to-head with the incumbent telecommunications carriers in providing service directly to end users, utilities do have certain features or assets that could be leased to others proposing to offer telecommunications services.
It has been estimated that collectively, utilities have the greatest requirement for real-time communications capabilities in the nation and that these demands are likely to increase in order for utilities to implement energy conservation programs and to enhance their control, reliability and responsiveness.
Changes in technology and regulation within the energy industry are driving the industry toward a more competitive market, in much the same way as the break-up of the Bell system and the introduction of low-cost communications technologies stimulated the growth of competition in the telecommunications market. Although there are definite parallels between the two industries, they also are converging in the sense that telecommunications technology is necessary for delivering each industry’s commodity.
Utilities already have many assets that would be important in developing the NII. Because of their need to meet critical functions such as protective relaying, electric system balancing, environmental monitoring, supervisory control and data acquisition (SCADA), and crew dispatch, utilities already operate some of the largest fixed and mobile communications networks in the country. According to a 1994 survey published by UTC (formerly known as the Utilities Telecommunications Council), utilities have at least 18,000 route miles of fiber optics installed, with at least 12,000 more route miles planned for installation over the next three years.
Because of the critical nature of communications in operating utility systems, most utilities have installed and operated private communications systems in order to maintain full operational control of the system and to minimize disruption of vital public services in the event public telecommunications networks have service disrupted. Utilities also have extensive access to rights-of-way, including building entry access, communications towers, customer billing systems and strong name recognition.
Many utilities also are exploring using communications technologies to provide customers with more flexible choices in managing energy/utility service, such as by providing time-of-use or time-of-day pricing for electric service. By comparison, the public telephone network is designed to accommodate as much traffic as possible, but is not necessarily capable of handling all of the traffic during peak periods, such as Mother’s Day or when Bruce Springsteen tickets go on sale. On these occasions, customers will simply experience blocked or dropped calls. By contrast, every electric system must be designed to meet projected peak load (for example, the electric demand on the hottest day in August for a utility in the southern part of the country), even though such peaks are infrequent. The penalty for undersizing the electric system is a systemwide brown-out or black-out.
Many utilities are exploring their options for negotiating agreements with personal communications services licensees for relocating the utilities’ microwave systems from the 2 GHz bands.
Preliminary studies suggest that utilities may be able to design their systems with reduced operating margins if they are able to encourage customers to refrain from using electricity during potential peak loading conditions. Many utilities employ a simple, voluntary form of Demand Side Management through air conditioner or water heater control, typically through use of a narrowband paging transmission. More advanced systems that would regulate energy consumption through time-of-day or time-of-use pricing would require a more sophisticated means to provide customers with pricing information and to read utility meters remotely. This link also could provide the utility with the opportunity to maintain closer contact with its customers and to provide other value-added services such as energy management. Field tests are underway in the use of both radio-based communications links and fixed links, including fiber optics, coaxial cable and power line carriers, whereby signals are transmitted along the electric cable.
In addition to DSM applications, many utilities are interested in deploying advanced communications technologies within their utility service areas as a means of stimulating economic growth in the community. This factor is particularly important to municipally owned utilities and rural electric cooperatives.
From this, it can be seen that utilities have both the opportunity and incentives to deploy communications systems that could form part of the National Information Infrastructure. Utilities are exploring a range of options for capturing these opportunities: simply leasing infrastructure assets to third parties, entering joint ventures with third-party service providers or providing telecommunications services directly to end users.
Given the typically conservative management within most utility companies, those that have entered the commercial telecommunications market to date have done so on a more passive basis through leasing infrastructure such as conduit space, communications tower space, or “dark fiber,” (unpowered fiber optic communications cables without the light sources or electronics necessary to transform them into communications systems). Many competitive access providers have developed their networks by leasing utility infrastructure. Many utilities are exploring their options for negotiating agreements with personal communications services licensees for relocating the utilities’ microwave systems from the 2 GHz bands.
On the other hand, some utilities are pursuing strategies to take a more active role in telecommunications. Several utilities (for example, Baltimore Gas & Electric and Midwest Resources) are providing telecommunications service directly to end users. Others are developing commercial mobile radio systems (for example, Southern Company and South Carolina Electric and Gas). A few utilities even were represented among the recent winners of the PCS Channel Block A and B auctions (Duke Power, South Carolina Electric and Gas and Carolina Power and Light).
It also should be noted that utility entry into telecommunications is not limited to utilities in the United States. Utilities in Great Britain, Japan, Germany, Finland and other countries are developing commercial telecommunications systems. In many areas of the world, where competition in telecommunications only now is developing, utilities are expected to be strong entrants to the competitive telecommunications marketplace.
Because of restrictions in the Public Utility Holding Company Act of 1935, some registered utility holding companies are precluded from providing commercial telecommunications services. In recent months, the Securities and Exchange Commission has indicated a willingness to be flexible in interpreting PUHCA in order to permit limited provision of telecommunications services. Other utilities have been precluded from participating fully in telecommunications due to general restrictions imposed by state law on the types of activities that can be conducted by a utility.
In a day and age when competition is the byword, it only makes sense to permit utilities to participate fully in telecommunications. Although some concerns have been expressed by incumbent telecommunications carriers about the risks of cross-subsidization if regulated utilities are allowed to provide competitive telecommunications services, regulatory agencies (including the FCC) have devised effective techniques to minimize the risks of cross-subsidization within these very same telecommunications carriers. It has yet to be explained how the risk of cross-subsidization would be any greater in the case of energy utilities or how the current regulatory techniques for preventing cross-subsidization would be any less effective.
While the policy debate in Washington has focused on the incumbent telecommunications carriers and new entrants in the wireless communications markets, relatively little attention has been paid to the potential role of utilities in helping to develop the NII. However, the attention that has been paid to utilities has stimulated even greater interest in telecommunications among them. With the potential for a rewrite of the Communications Act, utilities have advanced basically three positions:
Utilities should be permitted to participate in telecommunications under the same conditions as any other potential telecommunications service provider.
The definition of a telecommunications service provider should be limited to entities that provide service directly to end users and should not include entities that provide only infrastructure or other services to third-party carriers.
To the extent other telecommunications service providers wish to use utility infrastructure or services in the construction of their systems, the utility should receive fair compensation established through arms-length negotiations.
So why are utilities singled-out in telecommunications reform legislation? Largely because they are subject to certain regulatory restrictions that are inconsistent with their potential role in a competitive telecommunications environment. If barriers to entry in telecommunications are to be removed, there is no reason to retain any restrictions on the ability of utilities to provide communications services or to at least act as catalysts to competition.
Jeffrey L. Sheldon is general counsel of UTC, representing the telecommunications interests of nearly 2,000 electric, gas and water utilities and natural gas pipelines.