Wolverine Power primed for age of electric competition

CADILLAC – Deregulation of Michigan’s electric industrylooms on the horizon. It’s a revolution that promises to impact everyhousehold and business in the state. Preparing for this new age ofelectric competition, Wolverine Power Supply Cooperative haspositioned itself on the side of its 600,000 customers.

Following the lead of the airline, natural gas and telephoneindustries, Michigan’s electric industry is moving toward acompetitive market. While changes will offer electric customers anopportunity to choose a supplier, there are no guarantees the movewill result in consumer cost savings, according to Craig Borr, vicepresident of communications and member relations at WolverinePower.

“There’s going to be winners and losers,” he said. “I think therewill be fewer winners than losers when it’s all done. But no oneknows who will win and who will lose. The only assurance deregulationwill bring is choice.”

Wolverine Power is a member-owned electric power supplier. Itconsists of six member cooperatives providing service in 35 Michigan counties. Member cooperatives include Cherryland Electric, GreatLakes Energy, Presque Isle Electric & Gas, Top O’MichiganElectric Co., Tri-County Electric and Western Michigan Electric.

Cooperatives such as Wolverine account for about 15 percent of thenational electric market. Private companies, such as Detroit Edisonand Consumers Energy, and municipal facilities, such as Traverse CityLight and Power, make up the rest of the industry.

Wolverine Power is an outgrowth of the rural electrificationmovement of the 1930s. When the for-profit companies declined todevelop service in rural regions, citizens formed cooperatives toelectrify the countryside. Wolverine was established as the result ofa 1982 merger of two of these entities.

Although the majority of its customers are residential, itmaintains 1,700 miles of power lines and 160 electric substations.Deregulation, said Borr, is just a matter of time. Because it’s acomplex, big dollar issue, Borr believes state legislators will moveslowly on the matter.

In the meantime, the state edges toward a possible electriccrisis. Borr said the Lower Peninsula is growing at an annual rate ofabout three percent.

“Last summer, the state was dangerously close to being maxed outin terms of power supply,” he said. “This summer, I don’t thinkthere’s any doubt we’ll be very close.”

The energy need of the Lower Peninsula is 20,000 megawatts eachday. To accommodate growth, electric companies need to increasedelivery by 700 megawatts annually. But until deregulation ishammered out, energy suppliers are holding back on investing in theconstruction of new generation plants.

“They’re all waiting to see how the landscape is being laid,” Borrsaid. “You can’t take on the financial risk until you have a betterunderstanding of where the state plan is going to go. We’re all inthe same boat.”

The threat of an electric crisis is intensified by the fact thatMichigan has limited ability to import electricity from other states.As a peninsula, Michigan can import power only from its southernborder. The two existing import lines from Ohio are owned by DetroitEdison and Consumers Energy, those most heavily entrenched in thedebate.

While rural cooperatives like Wolverine Power were once consideredat a disadvantage because they had fewer customers per mile tosupport operations, they may have some advantage in the new age ofelectrification. Major power suppliers, Detroit Edison and ConsumersEnergy, must resolve issues with the state concerning billions ofdollars of stranded investment.

“We know where our future is,” Borr said.

During the past 18 months, Wolverine Power has implementedaggressive measures to maximize the cooperative’s stability andgrowth potential. It has moved from reliance on generating its ownpower, has re-negotiated power supply contracts, and cut itsworkforce by 35 percent. It bought out all of the company’s federalfinancial contracts and moved to private financing. These changesallow the company to accelerate debt payment with the expectation itwill be able to reduce customer rates by as much as 20 percent in theyear 2004.

Wolverine Power is also in the middle of implementing a $3million, two-year technology project. The equipment upgradefacilitates advanced line monitoring capabilities and enhances thecompany’s capacity to serve as an energy broker, one area itanticipates to excel at in the new competitive age.

“Our customers win,” Borr said. “It’s a big incentive for us andwe see a lot of opportunity right here in our backyard.”

Private power suppliers currently operate on a 10 percent profitmargin. Wolverine Power, where the customer is essentially theshareholder, shoots for only a three percent profit margin, bringinga customer-oriented perspective to deregulation issues.

Borr believes it’s imperative for businesses to gain savvy in howto play the new game.

“In the new environment, the customers who need this service mostwill not have the expertise to play in the market,” he said.

Borr encourages the business community to prepare itself and tobring their voice to the discussion.

“We need to be involved in the debate and follow it closely,” hesaid, “because it will impact all of us.” BIZNEWS

Reprinted from Cadillac Area Business Magazine, published byCadillac Area Chamber of Commerce. BIZNEWS