BPL LEGISLATION IN TEXAS

Lynne Kiesling

A bill pending in the Texas Senate would open up the market for broadband over power lines in the state, according to this Ft. Worth Star Telegram article from Monday. Note in this excerpt that the issue of who pays for the service and why they pay for it is present, as it always is in utility discussions. Note also that some of the commenters actually want utilities to bear some of the risk of the decision to implement BPL. This may be the beginnings of a cultural change. But, utilities are still arguing for passing costs along to customers, in essence reducing their risk.

But where consumer and industry groups part ways is on how Texas should get there — and who should foot the bill. Many detractors believe that the new technology is being oversold and — despite the limited pilot projects — remains largely unproven.

They also complain that under the deal that TXU and some utilities want — the plan as outlined in the initial Fraser bill — power companies could get into this very risky venture at no risk to themselves.

Rather, the utilities could pass on 100 percent of the upgrade costs to their electric customers, and then reap 60 percent of the profits. Electric ratepayers would receive the remaining 40 percent through a credit on their bills.

“That is what offends me the most,” said Geoffrey Gay, an attorney who represents Fort Worth in utility matters. “It’s not just the silliness of making the electric customer pay the cost — but that [the utility] can make profit off this through some other mechanism, and then tell the ratepayers that they can get credit for just 40 percent. That’s really offensive.”

But Stephen J. Houle, TXU’s vice president for corporate technology, said passing on the cost to electric customers makes sense because BPL potentially improves the overall efficiency of the utility’s electric operations.

For instance, broadband over power lines can let utilities remotely monitor their electric substations, it allows them to detect equipment failures and it can provide technicians with real-time data about equipment operations in remote locations, Houle said.

Houle estimated the cost at $300 million to $600 million to make BPL available throughout TXU’s North Texas service territory. “Hopefully, after we get this installed and you get just outstanding service … you’ll be so happy that you’ll think it’s a bargain,” he said.

He said that under Fraser’s bill, utilities could lease out their lines to independent BPL operators — theoretically at little or no cost to ratepayers.

Fraser, chairman of the Senate Business and Commerce Committee, described the legislation as a starting point for discussion. He said that the bill was brought to him by utility representatives and that the final version will incorporate changes to protect consumers.

“The intent is not to spread the cost to everybody over the system — that is not what we’re trying to do,” Fraser said. “This is an unproven technology — there are pilot programs going forward, but we don’t know for sure if this technology is going to work.”

I think this is very interesting, both the opportunities for the BPL technology and the rhetoric and the possibility for treating the utility like a normal, for-profit, risky venture in this transaction. But I suspect that the “consumer advocates” also would argue that 100% of the profit from BPL should be returned to them, instead of 40%. I also suspect that the measures to “protect consumers” that Senator Fraser is talking about adding will put in very static price protections for customers. Will that really promote the public interest? Why not let the customers and the utilities figure out what’s in the public interest by having the utilities making service offering and the customers choosing among them? Yeah, these BPL offerings are targeted at mid-size isolated communities, but they still have to compete with satellite and the potential competition that traditional broadband would provide if companies decided to offer it and enough customers were willing to pay enough for it.

But the really interesting thing will be the treatment of the equipment costs. Why, when we live in a world in which cell phone companies give away phones to get your business, should customers and utilities be told who will bear what share of the cost? Does Verizon decide that before they build more cell towers? I don’t think so, and furthermore, they don’t charge me for my phone!

Let me put it another way: why doesn’t the legislation just say that utilities may offer BPL service using their wires, and they may offer service choices to their customers? Let the buyers and sellers learn what the optimal price risk assignment is. Don’t have the hubris to think that legislative determination of the price risk split is anything other than an avenue for rent seeking.


One thought on “BPL LEGISLATION IN TEXAS

  1. It would make perfect sense for markets to determine prices and risk allocation for investing in the competative industry of high speed data transmission but as long as the utilities have captive customers how would market forces lead to any outcome besides the utility customers bearing 100% of the risk/cost while the utilities reap 100% of the profits. While consumers can alter their consumption of electricity in response to rate increases they can not eliminate their demand entirely, the owners of the power distribution grids would still be able to pass on the full upgrade costs. I just can’t see why the utility would want to offer a service that would allow consumers to opt out of paying for infrastructure improvements. If this is the case what methods can be used to remove the captive customer constraint and allow market preasures to allocate the cost of the upgrades?

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