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  The choices can be
overwhelming, but the end product may be worth the effort
By Ken Zapinski, Post-Gazette Staff Writer Ron Gerstacker is trying. Really, he is. To prepare for the day when he could shop for a new electric supplier, the Whitehall resident got a list of companies thinking about selling power to Duquesne Light Co.'s residential customers. There were 29 of them. "This volume of companies is quite cumbersome for somebody to sift through and make an intelligent choice on," he said. The lack of understandable information was a problem, he said, "for thousands of people like myself who are trying to make an intelligent choice." Sorry, Mr. Gerstacker. You’re going to have to hang on a little while longer. Some 3.5 million Pennsylvania customers are now eligible to select a new power supplier. But the newly forming electric market is so muddled it makes sorting through long-distance telephone companies seem easy. Some of the splashiest players taking part in the state's electric test program that began last year are bailing out.
Other companies say they want to sell you power, but they don’t want to tell you how much it’s going to cost. "Right now it would be a little bit premature to have numbers," said John Hose of Allegheny Energy. "We're still looking over the pricing information." And the savings available so far are nowhere near what the Public Utility Commission predicted as it wrote the rules. Electricity from two of the three companies that have released prices for residential customers in the Duquesne Light Co. service territory will cost average customers more money than they are paying now. The two companies say, however, they offer benefits besides just electricity. The third company's price will save a Duquesne Light residential customer less than 5 percent, not even half of what the PUC hoped for. "Certainly, there is the potential for consumers to be frustrated, which is the last thing in the world that I want," said PUC Commissioner Nora Mead Brownell. "What I am encouraging consumers to do is take their time." A slow startThe old regulatory order has been around for decades, so perhaps it’s not surprising that it hasn’t crumbled away quietly. And its dismantling has just begun. A quarter-million Duquesne Light customers received word last week that they were free to begin shopping for cheaper electricity. The utility, which still has nearly 150,000 spots open for the initial phase of the program, is further along than most of its peers. Allegheny Power and Pennsylvania Power customers are expected to be notified later this month. In all, up to 3.5 million Pennsylvania customers are eligible to choose a new company to take over their power needs in January. The state’s remaining 1.7 million customers will become eligible in 2000. Kicking things off has taken much longer than everyone thought. Customers who enrolled in the choice program were supposed to receive their formal notification — along with helpful shopping hints — in August. The shopping season was to start on Sept. 1. And anybody who signed up with a new supplier by Nov. 1 was guaranteed to start receiving electricity from the new company in early January. But those early dates slipped by. The PUC still hasn't established price rules for some utilities yet, including Allegheny Power. That means customers will have no idea where they stand if they go comparison shopping. Outside suppliers, meanwhile, are keeping mum until they know the utility’s price, so they know what they have to beat to grab customers. "I never expected it to go completely smoothly," former PUC Commissioner John Hanger. "It would be sort of Pollyanna-ish to expect that there wouldn't be bumps in the road." The ‘price to compare’One of the bumps that consumers will have to contend with is understanding how the program works.
The PUC will divide each utility’s current rate into two components. One part customers will continue to pay to the local utility even if they switch suppliers. That charge will cover the cost of delivering power. It will also cover the utility’s past investments in power plants, supply contracts and other expenses — its so-called "stranded costs." The second component will be the rate that the utility will charge for the actual electricity. Or, as the PUC calls it, the "price to compare." If you can find a supplier selling for less than your local utility's "price to compare," then you can save money by switching. The higher a utility’s "price to compare," the better for consumers, for it will be easier to find some willing to sell for less. For the typical Duquesne Light residential customer, the "price to compare" is 4.76 cents per kilowatt hour. It’s too early to say how large the savings will be. Early on, at least, they won't be as much as the state had hoped or as much as customers are enjoying in the electric choice pilot program that began last year. Gerstacker's July power bill provides a convenient example. Duquesne Light would have sold him the 792 kilowatt hours of electricity he used for $33.13. But Gerstacker, as a participant in the pilot program, switched to Allegheny Energy Services, which sold him the electricity for $10.95 less. That won’t send you jetting off to the Caribbean, but it’s nothing to sneeze at. "Not for me, anyway," Gerstacker said. "I'm retired and on a fixed income." The savings brought the two components of his July bill down to around $88, for a savings of 11 percent. Now run the example with the numbers from Exelon Energy, which so far offers the lowest price for Duquesne Light residential customers. Exelon, a subsidiary of Peco Energy Corp. of Philadelphia, would have saved Gerstacker about $4.50, or less than half as much. It’s way too early to be pessimistic, state officials said. "If other [suppliers] come in, and I think they will, I think you're going to see those prices come down," Brownell said. Others are more wary. There is no shortage of companies that want to serve business and industrial customers. When monthly accounts run into the thousands of dollars, the potential payoffs are large. Far fewer suppliers want to tackle the low-margin business of marketing to residential customers who grumble if their monthly bill creeps above $75 or $100. "That’s my worry – who are the sellers going to be?" asked consultant Timothy W. Merrill Jr., president of Competitive Energy Strategies Co. "My biggest concern is the presence of sellers, or lack thereof." Indeed, some big names are sitting this one out. Enron Corp., the giant Houston-based energy company, which kicked up a fuss at the PUC last year in a fight over Peco's stranded cost claims, isn’t selling to residential customers in the state. QST Energy grabbed thousands of customers in the pilot program thanks to its glossy ad campaign featuring celebrity spokeswoman Ann Devlin. But this summer, the company scurried back home to Illinois, selling off its customers to Exelon. "We felt it was a better strategic decision to focus on the regional market as opposed to the national," said Mead Babcock, assistant vice president of marketing for QST Enterprises. As to claims by industry watchers who said that QST was losing money on every customer thanks to its bargain-basement price, Babcock said: "We’ve had positive margins in Pennsylvania." Some companies that want to get into the market are waiting for their rivals to move first, so they can jump in with a lower price. The electricity shortages in the Midwest that sent wholesale power prices skyrocketing in June have also made would-be suppliers wary. Pittsburgh-based Consolidated Natural Gas Co.’s retail marketer, Peoples Plus, was active in the pilot program but isn’t venturing back into the residential market yet. "We are committed to the concept of being able to offer competitively priced electricity," spokesman Chet Wade said. But Peoples Plus needs to be able to save people money and make a profit. "Given the state of the wholesale power market right now, we don’t find that to be feasible. That doesn’t mean in the not-too-distant future we won’t have an offer," Wade said. Juice with a twistTwo of the companies willing to talk about their offers, not surprisingly, are two that are offering electricity with a twist. They are examples of where some marketers believe the industry is headed: Electricity will become something like gasoline at a convenience store — priced at a level to get people in the door so they will purchase other items with higher profit margins.
It might be electricity bundled with utilities such as natural gas, cable television, telephone and Internet access on a single bill. Or it could be something else, such as remote appliance monitoring or "the electricity equivalent of call-waiting," industry jargon for yet-to-be-imagined add-on services for which people will pay a premium. Vermont-based Green Mountain Energy Resources doesn't even pretend it will save consumers money. Instead, it says it’s trying to save their lungs. The company is pitching electricity made without coal or nuclear fuel, two of the cheapest but most hazardous fuel sources available, according to the company. Depending on how much customers are willing to pay, they can get power from cleaner burning natural gas plants, hydroelectric dams and renewable sources such as windmills. The power is more expensive because renewable-energy plants such as windmill farms cost more to build than conventional plants. The most expensive would cost a typical Duquesne Light customer about $8 more a month (see accompanying chart). Or as the company says, about the cost of a movie ticket and a soda to help clean the environment. The company is spending big bucks to get its message out through direct mail, television commercials and other advertising. And it is sponsoring a free concert in Philadelphia on Saturday by Kenny Loggins, James Taylor and Shawn Colvin to generate public awareness in renewable energy. Marketing director Ann Ryan said people are receptive to the message. One in five of the company's Pennsylvania customers has selected the most expensive — and most environmentally sensitive — electricity blend. "That’s a real promising early indicator to us," she said. DTE Edison America, meanwhile, is setting up what it calls "America's First Energy Club." For a $12 monthly fee, customers will be able to buy electricity and natural gas at DTE's wholesale cost. But customers typically will have to buy both gas and electricity from the company to see any savings. The added value comes from membership in the club, the company says. DTE Edison America hopes to sign up local merchants who will offer discounts to Energy Club members. The idea is that merchants will see more shoppers, and Energy Club members will save even more money. "We welcome competition because it provides us with an opportunity to bring our unique blend of features and offerings to energy consumers in Pennsylvania," said company president Jean Redfield. "Ultimately, customers will be the big winners, because competition brings out innovative offerings like America's First Energy Club, and lets the marketplace decide."
Choosing what’s familiar Consumers will have a lot to sort through. Phil Baratz, president of Florida-based Total Gas & Electric, said some don’t understand that reliability isn’t an issue, because the same utility that delivers power now will continue to deliver it in the future. "They're worried that if there is a blackout, their neighbors will keep their lights on because they’re still buying from the utility," said Baratz, whose company will be soliciting customers in the Philadelphia area. "I laugh at those things, but why should the homeowner know any better?" Customer apprehension can be a big hurdle to overcome. Insights Unlimited Inc., is a Devon, Pa., marketing and research company that works with some of the country's largest energy companies. In future years, corporate names like Enron and Cinergy may be as familiar to consumers as long-distance companies MCI and Sprint, according to the company. But for the foreseeable future, utility trade names and their association with reliability and service are likely to remain significant for consumers, a survey of Pennsylvania customers indicated. That could give Allegheny Energy and Penn Power Energy, a sister company of Penn Power, a leg up in this region, should they decide to compete. "Customers seem most comfortable in choosing companies they are familiar with," said Insights Unlimited research director Eric Malm. Another source of confusion is the continuing regulatory uncertainty surrounding the Pittsburgh area's two largest utilities, with some of the uncertainty stemming from Duquesne Light's effort to kill the proposed merger between it and Allegheny Energy. If the merger does not go through, Duquesne Light will be forced by the PUC to sell off its generating plants, with the money going to offset the utility’s stranded costs. If the plants sell for more than their book value, customers could begin seeing a higher "price to compare" and greater opportunities to save. But if they sell for less, customer savings could begin to evaporate. Allegheny Energy, meanwhile, has filed state and federal court actions to overturn some PUC orders and grant the company hundreds of millions more in stranded costs. A hearing is scheduled for next week on one company request to block the PUC’s phase-in schedule. If successful, it would delay competition for 400,000 Allegheny Power utility customers for one year. Brownell of the PUC is counting on people to be forgiving as competition gets off to a herky-jerky start. "I think consumers are smarter that we think they are. They'll understand," she said. "It's a brand new market."
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Clearly stated
price per kilowatt hour.
