Sam Houston Electric Cooperative

Texas Electric Cooperatives Will "Wait & See" what Deregulation Brings Before Offering or Making a Choice.

As a result of the Texas Electric Choice Act passed in 1999, Texas electric utility deregulation will begin in January 2002. Since this legislation was passed, a myriad of educational campaigns have flooded the marketplace teaching consumers that they will soon be able to choose who generates the electricity they purchase. Despite this publicity, most people still don't understand that the law will affect members of electric cooperatives differently than consumers of investor-owned utilities. In fact, for most of the 3 million electric cooperative members in Texas, things will stay the same until their cooperative decides whether or not to enter the competitive, deregulated market.

According to Texas Electric Choice Act, Texas investor-owned utilities (IOUs) will be required to provide their customers a choice of electric generation providers beginning on January 1, 2002. That means IOU consumers will be given the "opportunity" to sort through the myriad of price deals and savings contracts offered by electric generation companies in the new competitive arena. However, the legislative requirements are different for electric cooperatives and their members. The law will allow electric cooperatives to "wait and see" how deregulation affects the marketplace and its consumers before making a decision. In other words, electric cooperatives will be given time to decide if they want to "opt-in" or "opt-out" of the new competitive market. Once a cooperative decides to "opt-in," it cannot reverse that decision. For this reason, electric cooperative leaders are proceeding cautiously.

Electric cooperatives were created in the 1930's and still exist today because most of Texas did not appeal to the private sector investors and power companies. There just weren't enough customers per mile to make the profits companies wanted. "The large power monopolies had ignored their requests for service," Glenn English, CEO of the National Rural Electric Cooperative Association (NRECA), said, "so these hard-working pioneers got together and created electric cooperatives to do for themselves what others would not."

Rural consumers created electric cooperatives based on a unique business model. Locally based and democratically managed, co-ops have for decades provided their members with the lowest cost power and dependable local service. Operating as non-profit entities, cooperatives return unused capital to their members. This is in stark contrast to the IOU business model, whose bottom line goal is profitability. Understanding the intrinsic differences between IOU and cooperative businesses, Texas lawmakers granted electric cooperatives and municipalities the choice to opt-in or out of the new deregulation legislation.

"Electric cooperatives are in a unique position when it comes to deregulation," said H.E. Striedel, Sam Houston Electric Cooperative's General Manager and CEO. "Our members are well aware that co-op membership gives them the advantage of bargaining power that IOU customers don't have."

Sam Houston Electric Cooperative, one of the largest cooperatives in the state, presently serves more than 46,000 members in East Texas. Their commitment to doing what's best for their members is evident in their recent collaboration with nine other East Texas cooperatives. The ten cooperatives, which represent nearly 277,000 members, commissioned a survey to determine how their member-owners want to approach deregulation.

Via hundreds of phone interviews and scores of group discussions, an overwhelming majority of East Texas cooperative members indicated they want their cooperative to proceed cautiously when it comes to deregulation. In fact, 64 percent of the members surveyed believe that letting their co-op "do the bargaining" in the new market will ultimately give them more negotiating power and lower prices. Furthermore, only 16 percent of those surveyed expressed a desire for their cooperative to opt-in to the competitive marketplace.

Based on these survey findings Sam Houston Electric Cooperative, along with a vast majority of Texas electric cooperatives, is planning to take the "wait and see" approach to the new market.

"We take our responsibility to look after our members extremely seriously when it comes to this issue," Mr. Striedel said. "Our members told us to find the most efficient way for co-ops to benefit from deregulation and pass the cost savings on to them. So, our management team and Board of Directors is currently evaluating how deregulation has affected other states and is carefully considering the pros and cons before making the decision to opt-in. That means that for now things will remain pretty much the same."

"While Sam Houston Electric Cooperative members will not be given a choice in electric utilities
at this time, they can have faith that the co-op business model will continue to protect their interests. Striedel says, " Sam Houston EC's goal has always been to provide the highest quality electric service at the lowest possible cost; deregulation will not change that commitment."

Today nearly 1,000 independent electric cooperatives serve more than 34 million people in 46 states and provide service to nearly 70 percent of the country's landmass. As one of those co-ops, Sam Houston Electric Cooperative and others in East Texas are reaffirming their obligation to serve the best interests of their members. And right now that decision is to "wait and see" what's best for their members.