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

Fortnightly Magazine - January 1 1997

"In Illinois, perhaps they can see the mistakes we made and learn from them and avoid them in their own jurisdictions."

He says Illinois also learned that the price of electric is set by the market, not by producers. "You put enough competitors in the market with a knowledgeable consumer and prices fall . . . even below their margin in some cases. Is that 'predatory pricing?' ... From my perspective, that kind of pricing is beneficial. I see it all the time in cereals, foodstuffs, automobiles."

Viets says the pilot has proved that competition does work: the average cost of residential power on the CILCO system (em bottom line on the bill (em runs 7.28 cents per kilowatt-hour (¢/kWh); under the QST program, power averages 6¢/kWh or less. (O'Brien says his 17 residential customers are saving 10 to 15 percent overall.)

Said Viets at an industry conference the day before the settlement between CUB and Wheeled Electric: "As in other competitive markets, competition merely answers the question of which suppliers are willing to absorb margin or to invest in efficiency measures in order to gain access to the customer."

Viets said CILCO was a low-cost, popular utility and customers are aware of CILCO's progressive

restructuring attitude (it wants customer choice for all classes immediately and is decidedly against stranded-cost recovery): "And that rubs off on CILCO's affiliates. Now the success of QST has been challenged by some who are concerned with the affiliated-interest relationship. But nobody has questioned the fact that customers have benefitted from competition."

Subsequent to his speech, Viets was asked whether two companies (em QST and Wheeled Electric (em provided a large-enough universe of suppliers to represent "competition."

"The objective of competition is to win," he counters.

Viets agreed that the policy issues raised by the pilot would have to be heard at a higher level than the ICC.

Visnesky thinks the case boils down to two policy issues:

s Are PUCs willing to direct a "volunteering utility" to put conditions on its experiment and perhaps force an end to it?

s Should the U.S. Department of Justice get involved to minimize possible collusion with affiliates?

Significantly, suppliers were notably absent in support of CUB and Wheeled Electric as they battled against CILCO and QST. One observer explained why Enron sat out: "They've got other deals and irons in the fire and they don't want to get in CILCO's face. Enron [Corp.] has got a lot of deals with CILCO. And it's also true that CILCO is not perceived by anybody on the competitive side of the industry to be the enemy here. ... I don't think Enron ... wants to jeopardize [its] relationship with a company that's going to be helpful politically."

Martin Cohen, CUB executive director, says the settlement with CILCO and Wheeled Electric should in no way be viewed as a concession, even if the parties will work together on larger legislative issues, issues that may pit them against high-cost utilities like Commonwealth Edison Co., which supports phased-in restructuring and stranded cost recovery.

"We have