[BETA] Fortnightly

Residential Pilot Programs:

Doing,

Dealing?

Customer choice and electric restructuring may appear synonymous to regulators, but for utilities "choice" means "market share."

THERE WERE 19 PILOT PROGRAMS

planned or underway in the United States by the end of November, involving some 500,000 customers in all classes. The goal? To test competition in retail electric markets.

In the residential class, pilots were operating in Illinois, New Hampshire, and New York. Massachusetts expected to roll out its pilot by January 1. Pennsylvania was planning an April startup.

These programs capture market experience for incumbent utilities, their affiliates (regulated and unregulated), and independent marketers. And this experience raises some pertinent questions. But "Who's winning?" isn't one of them.

Better to ask, "How are the players going about attracting customers? What strategies work best? Do any tactics appear unfair or questionable?"

Is anyone making money?

And, oh, by the way, are customers saving money? In New Hampshire, after receiving solicitations from more than two dozen marketers, some customers discovered "choice" came down to a

6-cent-a-month decision, says one supplier.

In Illinois and New York it was the electric utilities who proposed the retail pilot programs. On the other hand, New Hampshire's pilot began by order of the state public utilities commission (PUC). These pilots operate very differently. They adopt varying objectives and offer varying results.

In more than a dozen interviews, regulators, utility officials, independent and affiliated marketers, and a consumer representative fielded these questions and raised other issues:

s Conflict of Interest. In Illinois, it's believed that at least one marketer may have held back from joining in a pilot-related complaint against Central Illinois Light Co. (CILCO) and its affiliate, QST Energy, Inc., so as to preserve working relationships with CILCO. The complaint, later settled, claimed the utility's sister company wielded its ties unfairly in the pilot rollout. QST won about 96 percent of those residential customers who chose to leave the utility system. Does a competitor's "holding back" to protect itself in other business lines hurt electricity's new free enterprise? If so, should regulators take notice and cure the defect by forcing utilities to spin off marketing affiliates?

s Predatory Pricing. Another antitrust issue: Should marketers be allowed to reduce energy prices below the cost of generating power to win customers? In Massachusetts, Enova Energy did just that, offering power at 1.93 cents per kilowatt-hour.

s PUC Oversight. Pilots clearly aren't the "main event" for regulators (em full restructuring is. Regulators are already saying that pilots, while interesting, aren't worth their full attention. But if pilots are voluntary, such as in Illinois, can the PUC direct the company to resolve problems?

If pilots lay the groundwork for restructuring, when will the players have learned enough to make them unnecessary?

Getting Down to Business

No one is making money in pilots. That much is clear. Not utilities, not affiliates, not independent marketers. Not in Illinois, New Hampshire, or Massachusetts.

Says Kathy Therrien, a principal at XENERGY, Inc., a second-tier subsidiary of New York State Electric and Gas Co. and a participant in the New Hampshire