Reform underpowered Featured

9:51am EDT July 22, 2002

For New Energy Ventures Inc., the choice was clear: There was no incentive to continue to try to sell electricity in Pennsylvania.

The California-based company lasted just six months in Pennsylvania, where the electricity supplier market is undergoing deregulation. A spokesman for the company said the firm just couldn’t make a profit, and attributed its pullout to the suspension of a Duquesne Light Co. program that sold electricity to suppliers at lower than normal rates to spur competition.

Duquesne Light’s action came during summer, the electric power industry’s period of peak demand. When power suppliers had to go out onto the open market to buy electricity, they found themselves paying top dollar. That’s why many of the more than 90 companies authorized to sell power in the state aren’t actively marketing here, and those which are, in most cases, are pitching only to large customers.

Any large-scale reform of a major industry is going produce disruptions, and the experience of New Energy Ventures shouldn’t necessarily be viewed as proof that electricity choice isn’t going to work in Pennsylvania. Thomas Gibson of the Gibson Consulting Group in Greensburg says the system is experiencing some upheaval as it tries to adjust to deregulation.

“I think deregulation is a great thing, but because it’s in its infancy, everyone is suffering from some growing pains,” says Gibson. He’s convinced that power customers ultimately will benefit from deregulation.

But the fact remains that reform thus far is offering quite modest savings to electricity users, including business customers. The Wattage Monitor, a service that tracks rates and competitive activity in the electric utility industry, reports that between October 1998 and April of this year, electricity rates decreased statewide in Pennsylvania about 3 percent, far below the forecasts of savings of 10 percent or more bandied about before deregulation began.

Jim Behr, of Energy Savers Inc., a North Hills energy consulting firm, says the situation is unlikely to change much until the issue of stranded costs is revisited. Stranded costs are investments or assets by electricity utilities that are likely to become inefficient or uneconomic in a competitive marketplace.

Duquesne Light customers, for instance, are paying off $1.3 billion in stranded costs in the form of under-performing capital investments, principally power generating plants. The stranded costs should be paid off by 2005, and Duquesne Light is getting out of the generation business by selling off its plants. Those two factors could very well result in lower costs for rate payers, says Behr.

While their savings might be modest, Gibson and Behr agree that business owners should nonetheless make sure they review their options. If you are a manufacturer, and electricity is a big chunk of your cost of doing business, you’ll want to pay closer attention than if you operate a small office.

“It’s another opportunity for businesses to save money,” Gibson says.

Besides, alternative power providers are more likely to be looking to cut deals with large users, where costs of administration are relatively cheaper, than with small commercial or residential power customers.

How to reach: Gibson Consulting Group, (724) 836-5554; Energy Savers, (412) 364-6468; for deregulation information, www.smc.org or www.electrichoice.com.