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A Round Robin of Residential Unbundling

Fortnightly Magazine - October 15 1996

promoted the program beyond the break-even point.

In Massachusetts, UtiliCorp planned a market test in the latter part of August. Itteilag says it's a fertile market, and the rates are better, although there are still risks. But the incumbent gas utility has spent thousands to promote the concept of gas choice that UtiliCorp won't have to spend.

Savings for residential customers, he says, will be less than the 5- to 10-percent average of the commercial/industrial market.

Besides overcoming the largest hurdle (em getting the lowest price in commodity gas (em marketers must bridge barriers at the local distribution company (LDC) to get customers converted. "The biggest challenge today is walking through a contract at an LDC," Itteilag says. Some are faster than others.

Residential program rollouts also encounter barriers. You should be allowed to telemarket customers and reduce the flow of paper customers must contend with to authorize a switch from an LDC to a supplier, Itteilag complains. Massachusetts has no paper flow; Maryland has "zillions of pages of paper. That's very difficult for homeowners."

Lastly, he says, "you shouldn't have short fuses of only two months to try and recruit customers. This is a long-term exercise."

What has UtiliCorp learned from its experience in commercial markets, from signing more than 80,000 customers, and from watching evolving residential markets?

s You can't stay in the residential business by losing money.

s You need to know exactly what customers want; you need the research.

s "Early and ugly" isn't good strategy. Follow that plan and you could miss the pulse of the customer. Plus, you give away your offer. PECO Energy Co. came out early in Maryland with its promotional literature, tipping its hand to customers and competitors. "You can't share that stuff anymore," Itteilag says.


No "Choice" Without Competition

When does a residential natural gas pilot become a reality?

In Wyoming, the Choice Gas Service Program gives 10,000 of KN Energy Inc.'s 60,000 residential consumers a chance to pick their gas supplier for the first time.

The program began May 1 (Docket No. 30004-GT-95-37). By mid-August, Wyoming Public Service Commission (PSC) chair Steve Ellenbecker was talking about the need to tweak it.

The limited unbundling program affects the gas commodity. KN retains the gas balancing of the interstate pipeline functions.

KN doesn't consider the program a test; the PSC does, if only because it will make changes this winter, Ellenbecker says.

So far, the only customers who have been able to take advantage of the program are irrigators that power pumps with natural gas. This year's heating season will provide a better test. The 10,000 customers were picked because they're served by the highest-cost gas supply in the state.

Only three competitors signed the minimum 500 customers needed to participate in Choice Gas; KN won 81 percent of the market.

"I would have hoped for closer to 10 competitors, and hope we get there," Ellenbecker says. "I hope it happens for the next heating season."

Some of the lack of competition could be attributed to marketers offering customers "signing rebates."