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RACHEL REABE: MPR's Mainstreet Radio coverage of rural issues is supported by the Blandin Foundation, committed to strengthening communities through grant-making, leadership training, and convening.

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Good afternoon and welcome to our special Mainstreet broadcast from the small Southwestern Minnesota town of Lake Benton. I'm Rachel Reabe.

Deregulation is on the horizon for Minnesota's electric industry. Within a couple of years, you could have a choice about who you want to purchase power from. Ostensibly, opening the door to competition would improve rates and service, but not everybody is convinced that will happen. We'll talk about it this hour with our guests-- Senator Arlene Lesewski, a Republican from nearby Marshall, is with me in Lake Benton, where we're broadcasting from the back deck of the Fremont Emporium, Minnesota's Commissioner of Public Service, Steve Minn, and Michael Noble, Director of Minnesotans for an energy-efficient economy, join us from our Saint Paul studio. Good afternoon and welcome to all of you.

STEVE MINN: Thank you, Rachel.

RACHEL REABE: And listeners, our phone lines are open for your questions and comments at 1-800-537-5252. Again, the number 1-800-537-5252.

Commissioner Minn, you've set the year 2001 as a target date to begin opening Minnesota's electric industry to competition. Give us the reason. Why should we deregulate?

STEVE MINN: Well, I think there's a compelling argument to be made that if we don't do it, the market will work around us and we will be a donut hole around a national deregulated market. So if you recognize the market forces, you recognize the changes in the industry nationally. You look at the trends in the industry and you say, why shouldn't it work in Minnesota if we do it in the Minnesota model? We can learn lessons from some states that have done it well and some that have done it poorly, and hopefully, come up with our own unique version of why it benefits ratepayers and consumers.

RACHEL REABE: What do you think the major benefits will be? Is it all money?

STEVE MINN: No, it's not necessarily money, although, it certainly has to benefit ratepayers as well as shareholders in order to have any value. Part of it is improved technology, innovation, capital investment by companies that have technology or the willingness to develop technology. And ultimately, capital follows where capital can grow. And that's the mantra of every industry that's going through restructuring, and I think it's no different than electricity.

RACHEL REABE: Our phone lines are open. The number 1-800-537-5252, 1-800-537-5252 to join this conversation about coming deregulation in the electric industry.

Senator Lesewski, what are your concerns about deregulation?

ARLENE LESEWSKI: Well, Rachel, I have a number of concerns. Living in rural Minnesota, where the population is a little more scattered than the Metropolitan areas, I am very concerned about the continued service that we will have for isolated populations in Minnesota and around the country.

Right now, we have a regulated industry and it was regulated for a purpose. And that purpose was to provide electricity for everyone in this country, guaranteed access at a reasonable cost. And right now, we're looking at restructuring or deregulating, creating competition within the industry. That's fine. But I certainly hope that everyone will look at a couple other industries that we've deregulated in the recent past, the airlines and the communications industry.

And I would ask people to consider the kinds of problems they have experienced since those deregulation have taken place, especially in the area of communications, which affects every citizen in this country. Airlines is something you choose or don't choose to do. And so we may not all have been affected by that in the same manner that we have with telecommunications.

I do believe that if we deregulate our electric industry, we will end up, in the end, with a couple of huge unregulated monopolies. At least now, we have regulated monopolies and we have government regulation that dictates to them what their prices will be, how much profit they can make, and that they do serve all the people at a reasonable cost. I'm very fearful that if we go too far into deregulation, we will lose some of the guaranteed access for many of the citizens of this country.

RACHEL REABE: So higher prices and lower service are things that you have major concerns about.

ARLENE LESEWSKI: Very much so, Rachel.

RACHEL REABE: Michael Noble, let's talk about what your concerns are. You come from an environmental background. Your organization, what are they concerned about?

MICHAEL NOBLE: Well, Rachel, the public interest community that works on the deregulation interest issues are focused not only on consumer protection issues, but also focused on environmental protection issues. There's no industry in America that has as large an impact on the environment as the electricity supply industry. Fully a third of all the carbon dioxide gases, more than a third of all the urban air pollution, and about a third of the mercury that builds up in our fish and our lakes are all contributed by the burning of coal and coal fired power plants.

So if electricity is deregulated nationally and in Minnesota, environmentalists are very concerned that this would open up more markets for the older Eisenhower-Era coal plants that are operating under regulations that are 30 and 40 years old, giving them new markets in out-of-state industrial sectors. And Minnesotans would bear the burden of more pollution. And out-of-state customers would enjoy the benefits of a lower electricity prices.

We see that there's a possibility, as the Commissioner Minn has said, that capital would follow opportunity and there would be opportunity for the new technologies, the clean technologies, high efficiency, natural gas generation, fuel cells, wind turbines, as you discussed in your earlier segment. But we're concerned that if the rules of the game, the rules of a deregulated electricity market aren't set fairly in a smart way, we could wind up with more pollution instead of more new technology.

RACHEL REABE: Commissioner Minn, you talked about figuring out how to do it following the Minnesota model. Would that address some of the concerns that we've heard from the Senator and Michael Noble?

STEVE MINN: Oh, absolutely. The Minnesota model is a fluid concept right now. But I will tell you that I consider myself an environmentalist. That was my background before I took this post in terms of my activities on the Minneapolis City Council.

I want opportunities for ratepayers to select the types of electricity that appeal to them, as well as markets to grow that support technology. There may be customers who want all wind generation. There may be someone who wants to buy no nuke electric power, maybe someone wants to make price one of their considerations.

Just like when you walk into a grocery store today, you can buy recycled paper towels. You might pay a premium for it, but that's a decision that you make in the marketplace. And I think consumers want those choices.

We certainly are going to maintain the reliability factors of service statewide. Any reduction in the quality of service or the reliability of service would be a disservice to the public, and we won't incorporate that or permit that to happen. But the reality of today's market is, if you want technology to be fully valued, you have to give corporations who are making these types of investments an incentive to invest. And in a regulated environment, particularly, a rate regulated environment, we've seen a trend in utility companies setting up what's called an independent power production subsidiary.

NSP, the large utility in the Metropolitan area, has a very large subsidiary called NRG. They produce power. They sell it into the national grid. And they are totally deregulated. And the ratepayers do not benefit from that power except as IT services the grid rather than as direct customers. We'd like to get that technology and that improvement.

RACHEL REABE: Our phone lines are open for your questions and comments. Let us know what you think about the coming deregulation. 1-800-537-5252. We go to Doug now, who's on the phone in Saint Paul.

Good afternoon, Doug.

AUDIENCE: Good afternoon. I had a comment about deregulation. I think it's a good thing. And I think that one of the things that was just mentioned, I would agree with very much that it's about more than just rates and service. I think consumers, including myself, would like a choice in terms of how the electricity was generated. And specifically, I would be willing to pay more for wind-generated energy.

RACHEL REABE: Well, let me ask you this, Doug, because we had the caller last hour from Wisconsin, who said he's willing to pay $4 more a month for wind energy, but $20 more a month, $40 more a month, doubling your bill. How high would you go?

AUDIENCE: I would easily triple the bill because I can see that in the long run, it is going to be cheaper. It's simpler. Granted, there may be some government subsidies and monopolies in effect that make a nuclear energy appear cheaper, although, you're just shifting the cost of it into the future, basically, with the cost of disposing of the waste.

ARLENE LESEWSKI: Yes, Rachel, I would just like to respond a little bit to that in the comments earlier. We talk about capital going where capital can be made. And the gentleman who just called talked about individual rates and being willing to pay more. And I think we all need to understand that whether we deregulate or not, those choices should and will be available to people to buy the kind of energy they want to buy. It has nothing to do with deregulation.

I also would just like to respond to Commissioner Minn's remark about the industries needing lower cost electricity and some ways that some of our electrical industry participants have been able to get around the law. And I think that that's something that should be addressed by our commissioners, certainly. But I don't think that that's probably a good reason for us to consider deregulation. I think that the case has not been proven to me that we should be deregulating as soon as the year 2003 or 2001, I guess it is.

And I would liken that to living out here in rural Minnesota, where we are a little more remote than in the Metropolitan area, where our electric bills are very critical to our small farmers, our small businesses and our farmers. And if we were to see a huge increase in the cost of electricity, it would be devastating to many of the farms who have livestock and other heavy electric usage, also to all of our small businesses. And to think that we are going to cater specifically to large industry on this issue is exactly why we need regulation.

STEVE MINN: Well, Rachel--

RACHEL REABE: Commissioner Minn, your comment.

STEVE MINN: I think there's a misconception in two parts here on the Senator's part. First, 2001 is my target for having the discussion. I don't know if that means that we will actually deregulate the market. My comments have been that we certainly want to look at it. We certainly want to present options. We want to take it on a wholesale approach rather than a piecemeal approach. And frankly, that's what's been happening for the last three or four years. Various vested interests from one industry or one environmental group have tried to make minor changes or sometimes, substantive changes in the industry. And I think piecemeal approach to changing the industry typically favors one stakeholder or one party over somebody else's interest.

I have to note, one of the reasons Minnesota is a unique model is that we are the 16th lowest cost state for electricity in the country. So clearly, cost is one, but not the driving factor. It has to be based on sound service reliability issues and availability. And the area of electric service that the Senator represents, actually, has far lower electric costs than the City of Rochester, which has a municipal utility. Arguably, the most expensive electricity in the state is in a municipal urban area like Rochester. And that's by function of the taxpayers and the city council there, using the revenue stream to fund other projects rather than just generating electricity.

Rural co-ops tend to be low-priced operators. They tend to generate power from cooperatives like the Sherco facility. Minnesota power up in Northeast Minnesota has one of the lowest costs of electric generation because they have a high percentage of Canadian hydro. We have to look at renewable energies, particularly hydro, particularly wind, as an opportunity, not as a burden.

And there are certainly some environmental oriented alternative energy programs that at first blush, have some start up costs. They may not survive in a shakeout. But ultimately, if we don't experiment with those technologies and attract capital to making them better technologies, we will never have a renewable energy source will be dedicated to fossil fuels, and that is a real tragedy.

RACHEL REABE: Senator, a question I wanted to ask you before we go on and take more phone calls. You said that we don't need deregulation to have consumer choice. And yet, always, when we talk about deregulation, we're saying the whole point of that is open it up for consumer choice. What kind of choice do we have now with no deregulation?

ARLENE LESEWSKI: Well, Rachel, the choices are being developed as we speak. And one choice is wind energy, another is biomass energy. And we haven't had those choices very much in the past. Those will be there, whether we deregulate or not.

I guess that a lot of misunderstanding is out there regarding deregulation and why some people think we need to deregulate the industry and why we shouldn't. But one of the reasons why I think we shouldn't is because we do have some very low cost electricity in the state of Minnesota. And when you look at lowering the cost for other states, coastal states and some other pockets that have very high electric rates, you're looking at increasing that cost for someone else.

And deregulation, the intent is to level out that cost throughout the whole country. It just makes sense.

RACHEL REABE: And you're saying, we have a good thing in Minnesota. Why would we want to change it?

ARLENE LESEWSKI: Well, that's absolutely right, Rachel. Why would we want to change it? And why would we want to put that burden of subsidizing higher cost areas on the people here in Minnesota?

RACHEL REABE: Would that happen, Commissioner Minn, if we pay $0.5 to $0.6 a kilowatt hour, might we be getting up to $0.12 and $0.14 and even higher?

STEVE MINN: Well, I don't see any scenario where that would happen. Frankly, that that's more akin to your current scenario than any future deregulatory effort right now. Uniformity of price and rate of return artificially suppresses markets where it's more expensive to generate and distribute electricity, and those tend to be rural areas. So if anything, those are areas where improvements in our technology and improvements in capital would benefit those users.

The Metropolitan area is fairly compact and the economies of scale are to generate electricity for distribution elsewhere. We have a fairly large reliability factor here in the Metropolitan area. It's getting service to rural areas and maintaining it that I think the Senator is concerned about. And I just don't see any diminution of that service or any shift of cost. I haven't seen any model that would suggest that.

And I need to point out in the regulated markets that we have right now, alternative energy is totally funded by subsidy. Essentially, it is subsidy that drives the technology. We have subsidies for biomass. We have subsidies for wind. We have subsidies for hydro.

Several of those technologies are self-sustaining, in fact, quite profitable, others are not. And what I see in restructuring is a first disclosure on the bill as to what consumers are paying for. That's the first step.

Right now, with all due respect to the senator, we have a number of charges and costs, which I think are societal costs that are buried in the rate. I would like to see the legislature vote for the subsidies, the cold weather rule, the subsidies that go toward generation of alternative energy and renewable sources disclosed on the bill so that consumers know what they are paying for.

We've actually paid three times for nuclear waste storage. Not only do we pay to the national trust fund for nuclear storage, but we pay to NSP ratepayers, pay for the local storage until the Feds do what they were supposed to do 12 years ago. A lot of buried costs in the bill, and I think disclosure is the first step.

MICHAEL NOBLE: Rachel, I think the--

RACHEL REABE: Let's go to our--

MICHAEL NOBLE: Rachel, I think--

RACHEL REABE: Yes, go ahead.

MICHAEL NOBLE: --the commissioner is right that there are buried costs in the bills. And I think also that Senator Lesewski is right that the public needs to have a reason to support deregulating.

The costs that I would identify as buried in the bills are the environmental costs that are not addressed by our current reliance on fossil fuels. We have large social costs related to human health, like asthma, and respiratory illnesses, and premature deaths of people who are old that are related to the nitrous oxides. We have mercury in almost every lake that's been measured-- where we've had measurements. We have mercury concentrations in fish that would cause our health department to recommend that people eat only one fish a week or one fish a month, and women of childbearing age never eat fish from most of Minnesota's lakes.

These kind of costs--

RACHEL REABE: But you are now suggesting, sir, that this information go on our monthly electric bill. Are you--

MICHAEL NOBLE: We would--

RACHEL REABE: Is it more your suggestion that in deregulation, your organization and other environmental groups would have a real educational campaign to encourage people to pick from power generators that are producing clean power? Is that what you're thinking?

MICHAEL NOBLE: No, Rachel. Actually, we think that even to begin the discussion about whether there will be choice in the marketplace, whether there'll be competition among the different generators, we should give a good two years time that the customers would get exactly that kind of information on their electric bills on a monthly or on a quarterly basis.

Imagine going into the grocery store and buying potato chips, and not being able to turn over the bag of potato chips and learn whether or not the potato chips are fried and corn oil or peanut oil or canola oil, whether they had 2 grams of fat, or 10 grams of fat, or 15 grams of fat. You wouldn't be able to even discern, on the shelf, what kind of potato chips you want.

Similarly, if electricity is just a commodity, we come in the door, we turn on the switch, the light goes on. We don't think whether that's related to nuclear power, or whether it's related to mercury in our lakes, or whether it's related to the kind of economic development out in the Buffalo Ridge that you talked about in your last segment.

So absolutely, we would call for-- and I think as many as half a dozen states have already done this, pass legislation that would require disclosure of both the mix of electricity sources and the exact environmental impacts-- how much sulfur dioxide, how much acid rain, how much nuclear waste is generated, how much mercury is generated by the bill you're holding in your hand. So we would definitely think that would be a necessary condition for any market to work so people would have information.

RACHEL REABE: Let's go to our phones, where we have Dwight from Minneapolis standing by.

Good afternoon, Dwight. Welcome to Mainstreet.

AUDIENCE: Hi. Thank you. My question is, for some time now, I've been getting regular updates from a group called Partners for Affordable Energy. And one of the things that I guess I read between the lines there is that large businesses, particularly, very much favor this fair market or free market approach to it because it offers a real opportunity of reducing their electric bills.

But at the same time, I see it all couched in the idea that you've got business on one side, you've got the environmentalists on the other. And I'm wondering if business is really this monolithic. I mean, it seems to me that there's small businesses and mid-sized businesses would really have a lot to lose if the really big guys start getting cheap rates at their expense. So I'm wondering if there's anything out there, if anybody looked at what the attitudes of business are on this.

ARLENE LESEWSKI: Well, Dwight, this is Senator Lesewski. And I just want to say that I couldn't agree with you more. I think that as we look at getting lower rates for some businesses and certain parties, we're going to see those rates go up for others because the cost of electricity is the cost of electricity, no matter where you are. And if one pays more, someone else can pay less. And that's just the way it is.

I think the other thing that really concerns me is as we look at deregulation and the free wheeling of electricity from one part of our country to another part, we're looking at needing a whole lot more transmission lines with more capacity than we have today. And as we would look at building more capacity, we would look at seeing the costs go up again. So I think that's something that we need to talk about and address.

The other thing that has come to my attention in the last few months is the fact that we have some owners of transmission lines today who are backing away from upgrading and the top quality maintenance that they should be putting into those lines, holding their breath until deregulation would happen. And I think that we may see a deterioration of our whole transmission system while the public is watching and waiting for something to be done in the area of deregulation.

So I think there are some dangers in all the talk that's been going on and the length of time that we've been doing it and still not having the issue resolved at this point. So I agree with Commissioner Minn, we do need to get the conversations going. Personally, I'm disappointed that we haven't had them going a little more in Minnesota to know whether or not we totally deregulate or do we end up with a restructuring or with some common sense regulation to help the consumers.

RACHEL REABE: We're talking today about the coming deregulation of Minnesota's electric industry with our guests, environmentalist Michael Noble, public service Commissioner Steve Minn, and State Senator Arlene Lesewski. I'm Rachel Reabe. Our phone lines are open for your questions and comments at 1-800-537-5252. And we'll be back with more of Mainstreet and your phone calls after a look at news and weather.

GRETA CUNNINGHAM: Good afternoon. It's 12:30 with news from Minnesota Public Radio. I'm Greta Cunningham. A state appeals court in Wisconsin says a mother who allegedly tried to drink her fetus to death cannot be charged with attempted murder. The court ruled that state law did not consider the fetus a human being.

The mother had been in a bar the day she gave birth. Her daughter was born with a blood alcohol level nearly twice the state standard for drunkenness. She was charged with intentional homicide and reckless injury.

Lawmakers are trying to assess the damage from the Chinese espionage case. The leaders of the House Select Committee that released a report yesterday are testifying on Capitol Hill today. Various lawmakers on the panel have praised the House Committee for producing a thorough report, but Democrats and Republicans are hurling accusations at each other. Democrats are warning that Republicans are using this to try to bash the administration. And GOP lawmakers accused Democrats of ignoring foot dragging in the Clinton administration.

The New York Police torture trial has resumed without the lead defendant. Officer Justin Volpe pleaded guilty yesterday. Federal Judge Eugene Nickerson told the jurors about the plea as trial resumed for four other police officers. Nickerson rejected motions for a mistrial. He instructed the jury to disregard Volpe's plea in considering the case against the other four.

In regional news, more charges are expected today in connection with the weekend disturbance in downtown Saint Joseph. The police chief says videotapes of the scene have helped officers identify 12 more people. They will be charged with disorderly conduct and unlawful assembly. 20 people were arrested at the scene early Saturday morning.

Advocates for rural education in Minnesota say their schools remain at a disadvantage for telecommunications. Governor Ventura cut almost $20 million in telecommunications access grants for schools this legislative session. Some educators say the grants would have created equal access and ability for all Minnesota schools. The Ventura administration plans to study schools telecommunications needs this summer and determine how costs should be divided between local and state officials.

The forecast for Minnesota today calls for sunshine statewide, warmer temperatures, with highs near 75 in the North to 85 in the South. At this hour, mostly sunny skies reported around the region. Fargo reports sunshine and 71. It's sunny in Duluth and 68, sunny in Rochester and 66. And in the Twin Cities, mostly sunny, a temperature of 70 degrees.

That's a news update. I'm Greta Cunningham.

RACHEL REABE: You're listening to a special Mainstreet report from the town of Lake Benton in Southwestern Minnesota. I'm Rachel Reabe. We're discussing opening Minnesota's electric industry to competition. My guests are Minnesota's Commissioner of Public Service, Steve Minn, Michael Noble, director of Minnesotans for an energy efficient economy, and State Senator Arlene Lesewski, a Republican from nearby Marshall. Steve Minn and Michael Noble are in our Saint Paul studio. Arlene Lesewski is with me in Lake Benton. And our phone lines are open for your questions, 1-800-537-5252.

How will electric consumers in rural areas like Lake Benton fare when the electric industry is deregulated? We have Rick Lemonds with us. He's the general manager of the Lion Lincoln Electric Cooperative in nearby Tyler. Mr. Lemonds, how do you think deregulation will affect your customers?

RICK LEMONDS: Well, Rachel, I think that one of the issues that Dwight raised when he phoned and Senator Lesewski responded to was the issue of the market forces. We are concerned that the industrial consumers who are actively pursuing deregulation will see the benefit of lower rates and the cost and the rates of return needed by utilities will be borne by the remaining customers-- the small commercial accounts, the farms, and the residential customers that we serve here in rural Lincoln County and Lyon County.

RACHEL REABE: So that's your concern, is that prices will go up?

RICK LEMONDS: Right. And I think another issue is, what's already been pointed out, is that Minnesotans enjoy very favorable retail rates right now. And I read an interesting anecdote the other day regarding the waterbed effect. And I think the NSP representative indicated that Californians pay $0.10 to $0.12 to $0.14 per kilowatt hour. And the waterbed effect will be pushing and equalizing rates across the country, with most folks, certainly, West of here, but generally, in the Midwest, seeing potentially higher electric rates.

RACHEL REABE: How could legislation protect your interests and that of your customers?

RICK LEMONDS: Well, I think there are several things that could be done. We believe that the consumer-- we look at it from the angle that the consumer is the most important part of our utility. We're not trying to guarantee a return to the shareholder. And I think Commissioner Minn pointed out that we do take great pride in our reliability and our service, and that we are a low-cost provider in this area.

Nonetheless, I think, one of the things that we've done very recently is we-- Lyon-Lincoln has joined a nationwide alliance of nearly 600 electric cooperatives in the introduction of touchstone energy. Just about a month and a half ago, our national association adopted an eight step Consumer Bill of Rights that we hope Commissioner Minn and the Department of Public Services uses to really take a good look at making sure that the residential customer and the small business person do benefit from deregulation.

RACHEL REABE: Do you see that your customers would have a lot more choices under deregulation as some other power company going to come out to Lake Benton population 700, and say, hey, we'd like to provide your power? Or is that unrealistic for this part of the state?

RICK LEMONDS: I believe, it is unrealistic. And I think we look at California. And less than 1% of the residential population has switched electricity providers there. There may be several reasons for that, but when we look at the folks like Enron, where they have been instrumental in bringing about deregulation in the better part of 22 states, representing almost 60% of the population in the country, they were basically marketing to residential customers less than a month in California. And whether it was the fact that they weren't getting folks to switch or other reasons I'm not sure of, but they're not marketing to residential folks there. And so we are fearful that they won't get the choices that Commissioner Minn believes will come.

And other states are slightly different. I think, Pennsylvania-- I talked to some people I know in Philadelphia over the weekend and their newspapers and their televisions are offering up all kinds of different alternatives for the folks in Pennsylvania. And so I think there are two ends of the spectrum. Pennsylvania is not a rural state like Lincoln County, generally speaking.

And we're just concerned that the big-- the market power will rotate out. I think, the big consumers-- and I've heard their representatives, and what they say is no one should be guaranteed a rate of return. And that's maybe a fair statement on their part. But somewhere along the line, the NSPs and the Lyon-Lincoln Electrics are going to have to get a rate of return from somewhere. And if other utilities, marketing entities are allowed to come in and steal our biggest customers, we have no choice but to pass on our costs to their remaining customers.

RACHEL REABE: Senator Lesewski, are you going to work to provide some legislation to safeguard these sorts of things?

ARLENE LESEWSKI: Well, Rachel, I do serve on the jobs Energy Community Development Committee in the Senate. And it is the committee that will be working to look at how we restructure and how much regulation will continue in place. And I'm sure that we will be working with Commissioner Minn on that issue over the next couple of years.

It's rather interesting to listen to Mr. Lyons and his perception of what could happen in rural Minnesota and to small users because it's exactly the fear that I have that could happen in Minnesota. Hopefully, we can work together.

One of the things I wanted to mention is that, I became aware of this issue back in about 1992 when I went into a national Regulated Industries Association meeting in Nevada. And it was just beginning then the restructuring of the electric industry. And it was interesting the players who was pushing for it and who wasn't.

And from that point on, it caught fire in Congress and became a big issue in Congress. Right now, I'm monitoring rather closely, through a number of publications, what's happening. And Congress is dragging their feet. They have set back to take a second look at whether or not we should move forward with this.

Unfortunately, as Mr. Lyon's mentioned, we do have some power brokers in this country who have formed organizations to do nothing but buy and sell power. And they have continued to push deregulation on a state by state basis. I think that's probably the worst thing we could do as a nation. If we are going to restructure or change our regulation, it should be done on a national level so that all states are on a level playing field.

RACHEL REABE: Commissioner Minn, would you respond to that?

STEVE MINN: Well, I think, the more instructive analysis, Rachel, here is let's go to Mr. Lyon's co-op and evaluate how the power is generated that is distributed in that co-op. I don't think they own any electric-generating facilities themselves, they buy the power from somebody else, correct, Mr. Lyon?

RICK LEMONDS: Well, we own the generating system.

STEVE MINN: Right. You own the distribution.

RICK LEMONDS: No, we own the generating system also.

STEVE MINN: OK.

RACHEL REABE: So you're actually generating the power in your cooperative?

RICK LEMONDS: We, through three affiliated organizations, own the generating stations that we get about 55% of our power from.

STEVE MINN: OK. And the remaining 45% is purchased off the grid?

RICK LEMONDS: No, that's not correct. I mean, we purchase about almost 50% of our power either from wind generation or from the hydro facilities in South Dakota.

STEVE MINN: OK. I'm unfamiliar with your co-op, but the point I was going to make is that most co-ops-- you're the exception rather than the rule, and you have the wind resource there to maximize. But most co-ops in the state no longer own generating facilities per se. They have become transmission companies.

And what I think the Senator's concerns are that probably will not come to the fore in this state is that co-ops will more than likely become transmission, distribution, and marketing companies. And the source of generation of power will become varied, perhaps, more competitive, and co-ops will form a very large customer alliance to compete with industries that are looking for lower rates. Co-ops themselves will be very large customers. The Touchstone Energy Alliance is an example of a cooperative effort to buy power competitively priced.

And I think co-ops in rural areas where you have a wind resource are going to be gateways to generating and passing on that technology to other co-ops. The customer, the residential customer is the beneficiary of having the infrastructure, the line transmission facility owned locally. No company is going to come in and try to compete at that level, but they want to compete on generating the electricity.

And just like cellular phone equipment. When cellular phones came out in the early '80s, I think the first phone I bought was, I don't know, $2,500. I paid something like $0.40 a minute. And my wife would yell at me if I made more than 100 minutes of phone calls on a month. Today, we make 100 minutes of phone calls in a week easily because it's $0.10 a minute. And I bought-- they gave me the phone for free. That happened because of competition.

Alternative technology came to the fore and I see that as an option. And I think the service has improved. And that's what I see for energy in the state as well.

RACHEL REABE: Our phone lines are full. Let's go to our patient telephone callers. First up, Lisa in Minneapolis.

Good afternoon, Lisa. Welcome to Mainstreet.

AUDIENCE: Good afternoon. I had a question about 20 minutes ago. But anyway--

RACHEL REABE: I recall that, Lisa.

AUDIENCE: Yeah. Here's one scenario that I heard. And this is a question for Steve Minn. One scenario, as deregulation was described to me one time, was that say, you have a fast food restaurant, a Burger King or something like that. The biggest customers can go in there and choose anything on the menu because they are the biggest customers and they get what they want. And then a residential customer would go in there and be only able to choose one thing on the menu, and it's one of the highest priced things on the menu because the biggest customer gets first dibs and gets the cheapest electricity.

Now, I'm just wondering how-- and I know this has been brought up, but I haven't heard how you're going to deal with that.

STEVE MINN: Well, Lisa, that's an excellent question. And I think that's the crux of whether we do it well or we do it poorly here in Minnesota, because the shift of costs and the limiting of options to residential ratepayers would be the absolute worst outcome in a deregulation effort.

What I see happening, though, is large industries-- let's take the steel industry. They're large consumers of electric power. In order for them to compete in the international marketplace, they're going to need to have a lower cost of electricity because Japan is dumping steel in this country. I see that industry as being one of the leading industries in getting lower energy costs in a deregulated market.

Now, how will residential consumers benefit? Several municipalities will probably work together and solicit requests from several energy companies to provide either franchised service or options to provide service within their boundaries, or communities like the area that the Senator represents will ban several co-ops together and put together a request for proposal from several energy companies to provide competition.

A single homeowner is no match for competitive pricing to the steel industry, but the power to get the local franchise to provide the transmission facilities and to generate into the market is the opening gateway to providing a number of other services. And electric deregulation only works because the companies that want to provide electric service also want to provide gas service and possibly, telephone service, and maybe internet service.

NSP is competing on the internet right now in Saint Cloud. They have a division called Sarin, where they're going to provide cable, video, and telephone service. These companies are going to become marketing companies. And they are banking that consumers want one bill for all their services and all their utilities, and they're going to become distribution channels. And that's where consumers benefit.

RACHEL REABE: We go now to Susan, who's with the Minnesota Chamber of Commerce.

Good afternoon, Susan.

AUDIENCE: Hi. Thanks for taking my call. Earlier, I guess, about 10 minutes ago, someone had asked what business thinks. And the chamber represents 3,600 members-- small, medium, and big businesses all around the state. And our policy position is that we support restructuring. About 20 states have passed restructuring laws. The Feds are moving in this direction.

And most important, though, I think were some comments earlier that were stated about low rates. And right now, there is some choice, but it's only if you're a big customer. And you have the ability to either provide your own source of power or cut a contract for a long term period of time, 5 or 10 years. So we believe that opening up the market will provide more protections and better prices for everybody, including residential customers.

MICHAEL NOBLE: Rachel, the--

RACHEL REABE: Thank you, Susan.

MICHAEL NOBLE: --the business interests in Minnesota are not all represented by the large industrial interests that have been most vocal on this issue. We commissioned a study of some 500 small and medium-sized business owners to find out what they thought about deregulation and what priorities they thought should be pursued as the state looks at these policy options. We were surprised and a little delighted that the average business owner-- small, rural, medium-sized business owner in Minnesota has pretty much the same attitude about deregulation that the general public does, which is they're not sure whether it'll be beneficial or not. They're pretty much evenly divided on the question, first of all.

And they say that when asked what they thought the most important criteria should be, the very top criteria was the health and safety of the public and the reliability of the electric system. In the middle is the quality of service and environmental protection. And at the very, very bottom of the list, their lowest priority is that they have additional choice of providers.

Now, they're not saying that they're against choice or they're disinterested in choice, they're just saying that the reliability of the system, the health and safety of the environment and of the public, that these are the highest priorities, and they should be put front and center in the debate.

So we invite the chamber to review that study and tell us if they would be willing to work with the environmental community to help put forward a proposal that would be very, very strongly protecting human health, very, very strong protecting the environment. And then at the end of the priority list, we could look at the question of giving everybody choice in electricity as well.

RACHEL REABE: We go now to Minneapolis, where Tim is standing by.

Good afternoon, Tim. Welcome to Mainstreet.

AUDIENCE: Thank you. I have two questions. One, I'm wondering how we're going to address-- I'm assuming that we're going to need a different type of infrastructure for moving this electricity around in a different way. Right now, it's all NSP for people here in Minnesota. And to open up all these options that'll be coming to consumers, I'm wondering what they'll have to do so that other companies can offer power.

I'm also wondering, I don't know if I'm just having a hard time understanding this, but power does not seem like a commodity that you can just-- as myself, as a consumer, it's not like going and buying a car or something like that, where you can shop about and just a couple of years later, decide that you don't like that car and trade it in and get a different one. I'm having a hard time understanding how electricity can be such a consumer good that it is this hard business competitive area. I don't see how it could shift that easily where a genuine competition could come up. I was wondering if your panel could comment on that.

STEVE MINN: Well, I'll be--

RACHEL REABE: Yes, let's start with the commissioner.

STEVE MINN: I'll be happy to weigh in on that. Electricity is probably more of a commodity than white rice and flour. I mean, basically, once it's generated, it is the same, whether it's nuclear-generated, wind-generated, or coal-generated, it's about as simple as can be. It can't be stored. It has to be consumed and can only travel on a line at a certain rate of speed. It's about as basic a commodity as it gets.

You might have nuclear-flavored or wind-flavored or coal-flavored electricity, but it is ultimately electricity. And the way consumers are going to get this is they're just going to make a choice on a bill and make a phone call because the line is already in the house or at the business.

Restructuring means you're going to break the transmission and the generation components of the electric system apart so that the companies are no longer vertically integrated. In fact, they will be horizontally separated. And a company that owns transmission lines could be carrying NSP's power. Minnegasco may get into the electric business. The Lincoln co-op could be selling electricity up to Duluth under this scenario. And it just travels along the lines.

We already have a regional reliability system in place, a multi-state regional reliability system called MAPE, which each utility pays a small fee to maintain-- it's like a traffic manager. They maintain the integrity of the grid system that distributes electricity. And just like traffic controllers in the airport regulate airplanes coming and going, the MAPE system quietly, just like the Federal Reserve processes checks from one bank to another, MAPE processes electricity from one co-op to one power station to one homeowner to one business. And that's why this is so ideally suited for restructuring, because if you want investment in capital, you're going to get investment in plant generation as well as distribution.

And distribution will be essentially in the rural areas where it has to be enhanced. We don't need distribution changes in the Metropolitan area. So Senator Lesewski constituents are only going to see more transmission reliability investment, not less. And they're only going to see more options for price competition, not less. And that's the whole art of this. If we don't do it that way, it's not worth doing.

MICHAEL NOBLE: Rachel, this question of electricity as a commodity really goes to the heart of the debate. When I look out my window in Downtown Saint Paul, I see the High Bridge Power Plant that was built on the Mississippi River back when Dwight Eisenhower was president.

And in 1990, that ran about 20% of the time because it was old, it's not as efficient, it's not a very high quality, high performing power plant. But now in 1998, because electricity is a commodity, and because electricity can be transmitted across state lines and sent to higher cost markets, because they have reliability problems in Wisconsin and they've had nuclear power plants closed in Chicago, the power plant out my window now runs half the time. And it, after deregulation, could easily run 80% of the time.

This is the central question for the environmental community is, how do we drive a deregulation deal that causes wind power to flourish, that it could be 15% or 20% or 25% of the market, causes natural gas and very, very high efficiency, combining heat and power to replace the old coal, and make a transition to a clean, sustainable, healthy energy future that's good for the local economy, that's good for the citizens of Minnesota, and does not treat electricity as a commodity that is completely undifferentiated between, as Commissioner Minn calls it, the different flavors, because the public really does care a lot about whether the electricity comes from clean sources or dirty sources.

RACHEL REABE: We go now to Northfield, where Scott is standing by.

Good afternoon, Scott. Welcome to our program.

AUDIENCE: Hi. Thank you for taking my call. I think some of the deregulation issues that we've been discussing, we have been experiencing quietly on the natural gas side of the utility business. Large customers are able to purchase their gas directly from someone other than the local franchisee and pay wheeling charges to transmit that gas to them.

I'm curious from your panel about, what have we seen as far as cost shifting and other impacts of that deregulation? And is that a good analogy for what we might experience in electric deregulation? And I'll take my answer off the air. Thank you.

RACHEL REABE: Thank you. Who'd like to address that question?

STEVE MINN: I'll take a shot at it, Rachel. The gas industry was essentially deregulated at the Federal level. It didn't require congressional legislation. So the Federal Energy Regulatory Commission was able to do it by rulemaking. And that separated, essentially, generation from transmission in gas. What's really left under the regulated umbrella is the local retail.

The example that your caller gave, we had an experiment with Minnegasco, the local gas utility in Minneapolis, called performance-based regulation, where we lifted the burdens of rate of return from their performance. If they were able to negotiate better gas prices, they shared a portion of those savings with ratepayers. If they were not able to lock in a long term contract to their advantage, the shareholders ate the difference, not the ratepayers. It resulted in about $15 million worth of savings for ratepayers.

And that's the kind of experimental effort that electricity deregulation offers. And your caller is absolutely correct that the gas model is akin to what we'd like to see happen. Unfortunately, electric generation is not nearly as simple as gas distribution. Gas essentially comes from Texas or Southwestern states. We bring it up in a pipeline. Gas is gas, and you don't have any generation issues.

Electricity, you get dirty electric, as Michael has eloquently pointed out. And the environmental factors of dirty electric are my main concerns. How do we foster growth of alternative and most importantly, renewable energy sources that are sustained in the marketplace? And that's what I want to see happen. I want to see the market say, I want that choice.

RACHEL REABE: And you think deregulation can do that, do you, Senator?

ARLENE LESEWSKI: Well, I personally don't think it matters whether we have deregulation or not. That can be accomplished either way.

RACHEL REABE: Do you think legislation needs to be put into place to encourage that, to encourage things like the wind turbine we see here on the horizon out of Lake Benton?

ARLENE LESEWSKI: Well, we do have legislation that helped create the wind turbines here in Lake Benton, and that was the Prairie Island Legislation that was passed back in, I believe, '92 or '93. And I think there are some things we can do legislatively.

RACHEL REABE: Thank you for your time. We are out of time this afternoon. Steve Minn, Arlene Lesewski, Michael Noble, and Rick Lemonds, thanks for being with us today.

MICHAEL NOBLE: Thank you for having me.

STEVE MINN: Thank you, Rachel.

RACHEL REABE: This special Mainstreet Radio broadcast is a production of Minnesota Public Radio. Our engineers are Rick Hebzynski and Cliff Bentley in Lake Benton, and Randy Johnson in Saint Paul. Our producer is Sarah Meier, site producer Mark Steil, and executive producer Mel Sommer.

We'd like to thank Jack Burke and his staff at the John C. Fremont Emporium for making this broadcast from Lake Benton possible. We invite you to visit the Mainstreet website, go to www.mpr.org. You'll be able to hear this broadcast as well as other Mainstreet reports. The address again is www.mpr.org.

MPR's Mainstreet Radio coverage of rural issues is supported by the Blandin Foundation, committed to strengthening communities through grant-making, leadership training, and convening. Minnesota Public Radio's Mainstreet team consists of 12 reporters at MPR bureaus across Minnesota. I'm Rachel Reabe.

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