Two Utilities are Better Than One

In Lubbock, Texas, two electric utilities are competing for people's business. How does it work? Could competition be the answer to rising electric bills?

Jan Bellamy from the October 1981 issue

(Page 2 of 6)

If the order form is confirmed, the new company goes out and changes the meter. The meters are stored at the main service facilities operated by each company. Each firm sets aside a special wall on which the meters of the competition hang, awaiting the call of a serviceman sent to retrieve them.

To make such switching possible, of course, the entire city must be covered by two sets of electric lines. Doesn't that make for "visual pollution"? I asked Webb and McDonald. They quickly pointed out that many cities have two sets of poles and lines already—one for the electric company and another for the phone company.

In Lubbock, the most common arrangement is for SPS and the telephone company to share one set of poles, while LP&L shares poles with the local cable TV system. (Although, as I was later to learn, pole sharing between competing electric utilities exists in some of the other duopoly cities, the LP&L/SPS cooperative competition has never extended to joint use of the same poles.) In newer Lubbock neighborhoods, all utility lines are underground, removing the aesthetics issue altogether. Interestingly, both LP&L and SPS began "undergrounding" in the mid-'50s, well before most monopoly utilities did.

What about "wasteful duplication," that traditional objection to competition between utilities? Apart from the very minor cost of the dual set of lines, about the only real duplication in Lubbock is the salaries of the two companies' sales reps, who solicit new customers and changes of service. As far as the really large costs—those of power generation— are concerned, each firm has geared its generating capacity to the size of its market share (split about 48/52 between LP&L and SPS, respectively, and relatively stable over time). Thus, neither suffers from wasteful overcapacity.

SERVICE WITH A SMILE

Despite the fact that each company serves the entire city and tries to win customers away from the other, it cannot offer the lure of a lower price: electricity rates in Lubbock are set by the city council—and kept the same for both firms. Consequently, the competitors must fight it out in the service offered to customers.

This nonprice competition definitely affects the attitudes of the employees. "If we don't treat you right, you have a place to go," mused McDonald over lunch. "People come in and say, 'Wish we had two phone companies in town.' "

Awareness of the importance of courtesy and service doesn't stop with the top managers at either company. Both firms' offices, I noticed when I visited, sport displays in the forms of rugs on the floors or posters on the walls, reminding employees that the customer is always right in Lubbock, Texas.

SPS takes great pride in its Consumer Services Department, which serves Lubbock among seven cities in Webb's district on the southern plains of Texas. The nine-member department offers a home demonstration service and provides advisory assistance in the design of facilities for commercial and residential builders, upgrading of lines and fixtures, and engineering of commercial cooking facilities. Webb stresses the company's involvement in promoting Lubbock as the site for new industries.

Not to be outdone, in or out of the office, McDonald argues that city-owned LP&L offers every service outlined by SPS—with the exception of those three home advisors, who, McDonald snipes, spend more time in cooking schools than in homes and actually compete with every home appliance store in town. Webb just grins; the verbal barbs are part of the game.

Both companies schedule specific appointments for placing their meters so that the customer does not have to sit at home all day waiting. Webb points out that SPS follows that procedure in all of its service areas. Could it be an indirect influence of the competition in Lubbock?

Neither company cuts off a customer unless a bill goes unpaid for up to 60 days. And if, as sometimes happens, a resident gets confused and calls the wrong company about an outage, standard procedure for each firm is to notify the other.

Sitting across the table from these two men, I could understand why, as longtime friends and business associates, they could accept such a truce; the cooperation simply makes good business sense. Neither Webb nor McDonald hesitates to say that he would prefer to run the only electric company in town, but neither will aspire to put the other out of business: the citizens of Lubbock, Texas, like things as they are, they assured me.

Bottom-Line Benefits

It sounded almost too good to be true. So I decided to check out consumer reaction myself, spending an afternoon walking through a Lubbock subdivision with camera and cassette recorder, knocking on doors. More than one door was opened wide to me with an invitation to "sit a spell" and hear the praise homeowners heaped upon either one or both companies.