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Residential Pilot Programs: Who's Doing, Who's Dealing?

Fortnightly Magazine - January 1 1997

and Massachusetts pilots: "I think that everyone was in the overall game to learn. I don't think anyone was up there to make money."

According to Martin Murray, a spokesman at Public Service Co. of New Hampshire (PSNH): "Nobody is making money on this ... and I think they would tell you that honestly too. Because in some cases, I don't think it's market share, but like what we're hoping to gain, it's knowledge."

Robert O. Viets, CILCO's chief executive officer (CEO), recently told a group of industrial consumers: "The first factor with the CILCO program is that we're determining you really can't make money on pilots. ... You have a lot of thrown-in marketing costs to develop the kind of packages that you want for those customers. It is awfully hard to make that pay off."

Ed Van Herik, a spokesman for San Diego Gas & Electric and Enova Corp., suggests, however, in a "noncompany" opinion, that there's nothing wrong with not making money.

"Where does the free market start and where does the regulated portion end?" he asks. "There's a concept known as 'loss leader.' Is that illegal? Certainly not in the open market. And that's not an antitrust violation. ... When people are talking about creating a free market, they're talking about it with a regulatory mindset, and it's real hard to see how the two of them fit together."

His colleague, Mona Yousry, a senior vice president at Enova Energy, declined to disclose the identity of the particular generators within the New England Power Pool from which her company buys power for the Massachusetts pilot. "Whether you make money or not is not the issue," she says. "The issue is, we spent money on marketing and advertising. ... And, to me, that's just our way of marketing in an environment which is going to be the environment of the future."

Explain that to John O'Brien, president of Wheeled Electric Power Co., which seems to be fighting for its competitive life. Wheeled Electric is the company that filed one of the complaints, later settled, against CILCO. In Massachusetts, through a partnership formed with CINergy Corp., Wheeled Electric is trying to win market share with a 2.71-cent commodity price against Enova's 1.93-cent price.

"Selling below marginal costs is a felony," O'Brien says of Enova's rate. "It's a per se violation of the antitrust laws. The idea that they're going to sell power at 1.9 cents (em frankly, I don't know that there is production in NEPOOL that's that inexpensive. And if there is, then the utility should be buying it for their native load, not trying to use it to capture market share."

So money isn't the name of the game. The fight is over share, winning customers. How that share is being captured and leveraged, and why these pilots are happening might teach regulators much more about competition than they'd like to know.

Illinois

When CILCO rolled out its self-proposed Power Quest electric pilot on May 1, 1996, for 2,365 customers in three small Illinois towns, power marketers stormed