Gray Expectations - energy deregulation scenarios - Industry Overview

Kiplinger's Personal Finance Magazine, June, 2001 by Jeffrey R. Kosnett

No one suffered a service interruption when Summit and D&L terminated service. Their customers were returned to the regulated utility, Columbia Gas of Ohio, at 74 cents, almost guaranteeing monthly bills of more than $200.

The lesson: If you do get a chance to shop for energy, find out as much as you can about who the marketers are. Even if you have to pay a little more, it may be worth it to do business with a large firm that can absorb some losses if unforeseen occurrences shake up the marketplace.

The dream lives on

AT LEAST ONE man in Ohio continues to believe that real utility competition will soon benefit consumers. He's Tom Coyne, who for almost 20 years has been mayor of Brook Park, a small city known for two things: It's the home of a gigantic Ford plant and it's next to Cleveland's airport. He's also a ring-leader of an organization of about 100 local governments called Nopec, the Northeast Ohio Public Energy Council. Nopec hopes to be one of the first groups in the U.S. to overthrow a local monopoly electric company.

In January, Nopec sponsored a referendum to bid for bulk power. But unlike Peter Gerken's experience of being stood up, Nopec's date showed. In March, Green Mountain Energy of Austin, Tex., signed a deal to supply power to Nopec's service area of about 400,000 people. But that highlights another limitation of deregulation. If all works out, the contract would eventually offer a savings of only 1% to 3% on residential bills because only generation costs are open to competition.

Most homeowners who hear about the wonders of deregulation may not understand that their savings could amount to only $5 a month, Coyne says. And if marketers start transmitting power all over Ohio, lines will be stressed and need more maintenance, the cost of which would eat into that modest savings.

But it's the principle of the thing, Coyne insists. "The people of this state usually say the gas company is a good guy but they hate the electric company," he says over coffee. "They are demanding to save something." His last two wintertime gas bills, he confesses, were $400 and $339.

He believes that what people really care about is "that the days of the gas company and the light company are over." Never mind that what you save on electricity may barely buy breakfast at McDonald's, while what you pay for gas could fly you to Paris.

YOU'LL PAY MORE TO KEEP COOL

This could be a long and expensive summer for power users, and not only in California. Higher prices for spotty service caused by brownouts are likely, though exactly when and where we'll see them is impossible to predict.

The problem: New power demand has far outstripped added supply, and there has been little construction of transmission lines. Stressed-out power grids are vulnerable to breakdowns should unusually hot weather afflict New York, New England and the Southwest. Competition for the surplus power that is available for utilities to buy from other regions is vigorous, so prices on the unregulated spot market could spurt, adding 10% and possibly more to residential bills.