Scope of NRECA and its Members

NRECA is a not-for-profit national service organization headquartered in Arlington, Virginia. It represents approximately 1,000 rural electric cooperatives that provide central station electric service to approximately 30 million consumers in 46 states. Of these rural systems, more than 60 are generation and transmission (G&T) cooperatives, which are owned by and serve approximately 750 of the more than 900 distribution cooperatives. Kilowatt-hour sales by rural electric cooperatives amount to 7.4 percent of total electricity sales in the United States, and produce revenues of over $14 billion. Rural electric cooperatives own approximately 32.8 million kilowatts of installed electric capacity, or 4.5 percent of all capacity in the country. Rural electric cooperatives own and maintain more than 2 million miles of power lines to serve their consumers (approximately 44 percent of the total miles of power lines operated by all electric utilities in the United States).

NRECA's two newest members are electricity aggregation cooperatives: 1st Rochdale Cooperative Group in New York City and the California Electricity Users Cooperative. Both of these groups will be discussed in more detail later in these remarks.

Scope of Virginia Electric Cooperatives

There are 14 electric cooperatives in the Commonwealth of Virginia. Thirteen of these are electric distribution cooperatives, and one is a generation and transmission cooperative. These cooperatives are owned and governed by the 900,000 Virginia consumers that they serve.

Scope of Cooperative Businesses in the U.S.

More than 100 million Americans belong to cooperative business organizations: electric cooperatives, credit unions, agricultural cooperatives, electric aggregation cooperatives, food cooperatives, recreational cooperatives, and other consumer-owned organizations. Cooperatives enable consumers to associate together for a common goal, to maximize mutual benefit for the community at the lowest possible price.

Sampling of Current Aggregation Initiatives
New York City

1st Rochdale Cooperative Group, Ltd. - an aggregation energy services cooperative - was formed in September 1997 by a central organization representing approximately 50,000 New York City families that live in and own housing cooperatives. All told, roughly 500,000 families (about 1.2 million people) in four boroughs of New York City live in and own housing cooperatives. The housing cooperatives range from low income to Park Avenue and Central Park West. These thousands of individual housing cooperatives work together through a small number of coalitions on various issues. These coalitions are seriously considering joining the 1st Rochdale initiative to purchase electricity and other energy and energy services jointly. Other potential participating groups include the similarly situated high-rise residential buildings (such as condominiums and apartments), commercial high-rise buildings, and public institutions (such as colleges, universities, hospitals, and performing arts centers).

At present coalitions representing roughly 2,000 residential buildings - as well as a chain of banks - have committed to participate in the 1st Rochdale aggregation initiative. 1st Rochdale will become registered as an energy services company (ESCO) with the New York Public Service Commission (NYPSC) before the second wave of retail access in the Consolidated Edison service territory, no later than April 1999. In the meantime, 1st Rochdale will develop its organizational structure, negotiate with service providers, solidify its membership list, comply with NYPSC filing requirements, and begin providing non-electric services to its members.

The primary goal of 1st Rochdale is to lower its members' total energy bill - rather than merely focus on a lower rate for electric energy. Toward this end, 1st Rochdale will be involved in delivery of energy management services, development of generation strategies, and group purchase of electricity and fossil fuels. 1st Rochdale is evaluating whether to bid on divested central station service assets from Consolidated Edison, and is also assessing micro-turbines and other distributed generation alternatives (such as photo-voltaics and fuel cells).

1st Rochdale will participate in a Northeast-wide energy cooperative for group provision of certain back-office services.

California
California Electric Users Cooperative

More than a dozen major agricultural cooperatives in California have joined forces to form the California Electric Users Cooperative (CEUC) to aggregate the loads of their respective production facilities and farmer-growers' local operations. The membership list reads like a "Who's Who" of California: Sunkist, Blue Diamond, and numerous other cooperative businesses located in virtually every non-metropolitan county in the state.

The CEUC was incorporated on November 24, 1997, and began serving its members when the California retail market was opened to competition on March 31, 1998. The CEUC signed a three-year contract with New West Energy (an affiliate of an Arizona public power utility) to provide full energy services for the CEUC. The energy provider will acquire and deliver energy, provide metering and billing services, and install new meters in accordance with the rules of the California Public Utilities Commission.
CEUC's contract with New West Energy also provided for the CEUC to serve as the power purchase aggregator for the farmer-growers who are the member-owners of the CEUC's participating agricultural cooperatives. There are roughly 19,000 farmer-growers that belong to and own the agricultural cooperatives that formed CEUC. In the first round of sign-ups for individual farmers to add their commercial and residential farm electric loads to the CEUC purchase, enrollment totaled 454 farmer-members representing 2,700 separate accounts and a maximum non-coincident peak demand of 136MW. Subsequent sign-up opportunities will occur in the near future. This farm load included every significant dairy cooperative in California, as these businesses determined that the CEUC was the only real option that the dairy cooperatives have under California restructuring. The farmers found that their individual loads were not attractive enough to obtain competitive prices in the marketplace.

Credit Unions

The withdrawal from the residential sales market by several major and minor power marketers has created growing concern in California state agencies and with some members of the California Assembly that the smaller consumers (small business, small commercial and residential) will receive little or no benefit from restructuring. This is resulting in an increased awareness in the value of aggregation through cooperatives. Both the California Assembly and the California Energy Commission are investigating ways that they can facilitate the development of aggregation cooperatives, in order to maximize restructuring's benefits to small consumers. Among the first organized groups to react to this new opportunity are the state's credit unions. These consumer-owned businesses have their own commercial facilities and would also seek to aggregate on behalf of their member-depositors across the state. Millions of Californians are members of credit unions.

Chicago

Numerous consumer-owned organizations are investigating the feasibility of forming an electric power purchasing cooperative to serve commercial and residential needs in Chicago and the surrounding metropolitan area. The Illinois legislature has adopted restructuring, with large loads in the Commonwealth Edison territory attaining retail access in early 1999 and residential consumers qualifying by 2002.

Participating groups at this stage include Illinois rural electric cooperatives, Chicago-area housing cooperatives, Illinois credit unions, condominium property managers, and Chicago food cooperatives. These groups have their own commercial loads (such as office buildings), and also seek to serve as an aggregator to their members' individual home and apartment electric needs.
The group is continuing to expand and to evaluate (1) Illinois restructuring timetables; (2) consumer opportunities and challenges; (3) cooperative resources available; and (4) and the extent of interest among Chicago consumer groups to form an electricity purchasing cooperative. The groups also intend to serve as a coordinated, primary source of information for their respective members regarding electric retail choice and how consumers can effectively access the competitive market.

New England

Consumer groups throughout New England have joined together to form an electricity and energy aggregation cooperative: Cooperative Pioneers, headquartered in Manchester, New Hampshire. The regional venture includes electric cooperatives in New Hampshire and Vermont, credit unions in Massachusetts, Connecticut, and Rhode Island, housing cooperatives in New York City, and other cooperative organizations. The Northeast regional cooperatives will purchase electric energy and energy services from rural electric cooperatives located in New England and other areas of the Eastern U.S. The group is working to organize local aggregation cooperatives and to maximize consumer participation under the various restructuring procedures and timelines applicable to the individual states throughout the region.

Texas

The Texas Legislature is evaluating whether to enact retail choice in electricity. Certain municipalities are considering forming alliances with nearby electric cooperatives to assure that their citizens can gain maximum benefits from new market opportunities. Because of the lack of choice (and price reductions) available to residential consumers in states that have implemented retail choice, some Texas cities want to act as aggregators for their residents. However, rather than investing in formation of municipal utilities or otherwise directly serving as the aggregator, these cities are considering formation of aggregation cooperatives within their boundaries, in alliance with adjacent electric distribution cooperatives.

Industrial aggregation

Wherever there is a large concentration of heavy industry, there is a strong potential for the aggregation of those consumers into a cooperative. Industrial representatives from one heavily industrialized Midwestern state have approached electric cooperatives for guidance on forming such an aggregation cooperative to maximize their purchasing power. The heavy concentration of petrochemical industry in the Houston Ship Channel area represents another example ripe for this phenomenon.

Agricultural cooperative aggregation

In much the same way that multiple agricultural cooperatives in California formed the CEUC, large multi-state agricultural cooperatives have contacted NRECA for guidance on forming aggregation cooperatives for both their production facilities (industrial loads) and the farms of their members (commercial and residential loads).