City-Owned Utilities Face a More Competitive Future

In October 1911, Vice President James Sherman waved to the crowd from the back of an automobile. Streets were blocked. Tents were set up. Parades moved through town.

Sturgis had reason to celebrate: It was producing its own electricity with a newly constructed dam.

“We have the old St. Joe River working for us now,” an invitation boasted.

Today, water still supplies power to the 10,000 residents and businesses. But city leaders are warning that hometown electricity--and the riches that come with it--could be threatened by competition from larger companies.

In the years ahead, for example, some of Sturgis’ 70 industrial customers may want to use the city’s distribution lines to bring in a less expensive brand of electricity from outside Michigan.

And Sturgis is not alone. Many other communities with their own utilities could be vulnerable.

“If we can’t beat their price, the handwriting is on the wall,” said Chuck Frickie, executive director of Traverse City Light & Power. “I’m not opposed to competition; I view it as a positive. The key is to avoid predatory pricing.”

“This is just starting to break now,” said Gary Zimmerman, vice president of the Michigan Municipal Electric Assn. in Lansing. “In the next five years, you will see restructuring throughout the United States. We’re all worried about where the business may be.”

Under state law, cities that want to run utilities can keep others away from their territory. But as with natural gas and long-distance telephone calls, experts believe the trend will be to let customers shop around--especially ones that need a lot of energy.

In Washington, the Federal Energy Regulatory Commission is writing new rules that would allow widespread wholesale distribution of electricity from region to region without excessive transmission costs.

In Lansing, Consumers Power Co. and Detroit Edison Co., fearing they might be undercut someday, got approval from the Michigan Public Service Commission for long-term contracts with some of their major industrial customers.

Nothing will happen overnight. But in cities like Sturgis, 50 miles south of Kalamazoo near the Indiana border, officials are bracing for a new era.

Here, the utility is a vein of gold. In 1994-95, nearly 25% of the revenue in the $4.3-million budget came from the electric department.

The sale of power also paid for special projects: $670,000 for street construction; $630,000 for City Hall renovations, which included red oak doorways and attractive grilles at entrances; $60,000 for new lights in the auditorium parking lot.

Overall, the utility collected $14.6 million from customers and posted a $2.2-million profit.

“These are profit centers for anyone who has one,” City Manager Jerome Kisscorni said. “We’re sound. We have money in the bank and low debt load. Citizens know when they pay their bills there are benefits for the community. The dividends are what they see around them.”

With easy access to major highways, Sturgis has a variety of attractive industries, such as Ross Products, maker of baby formula; Grumman Olson, manufacturer of aluminum truck bodies; and Kirsch, maker of window blinds.

But Bob Myers, director of the Sturgis Chamber of Commerce, said allegiance to the hometown utility may not mean much if rivals come in with a better offer on electricity.

“It’s all a business decision,” he said. “They’re competing globally with their products. I don’t think they can afford to pay more for electricity if another deal is out there.”

The promotions have begun. Michigan Gas Utilities, which sells natural gas in Sturgis, is reminding businesses here that its parent company, UtiliCorp United of Kansas City, Mo., also peddles electricity.

“We’re just trying to raise awareness. We’re looking to the future,” said Tom Fletcher, a UtiliCorp regional sales director.

Consumers Power, which has a foothold in areas surrounding Sturgis, said it has no strategy to target the city. But Kisscorni considers it a possible rival.

“It’s too early to tell who is going to be the winner or loser,” said Charlie MacInnis, a spokesman for the Jackson-based company. “Competition will definitely be part of the new culture.”

Meantime, Sturgis wants to keep its system in top shape. Plans for 1996 include getting a new license for the dam, building a new substation on the north side of town, replacing street lights and improving the billing system.

“We’ll survive in one form or another but maybe lesser than what we are now,” Kisscorni said.

Bob Hair, a longtime resident and historian, said people are proud of the home-grown product: “We have very few interruptions, maybe fewer than most utilities. I’d hate to see it change.”