A Round Robin of Residential Unbundling

Fortnightly Magazine - October 15 1996
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Whether you're a utility commissioner in Wyoming or Georgia, a v.p. for a leading marketer, or a commission division director in New Jersey, you share a common activity: learning by the seat of your pants about deregulating gas markets. In this gas forum, PUBLIC UTILITIES FORTNIGHTLY highlights developments across the nation.

UtiliCorp United, Inc., a leader in noncore gas markets, plans to step into the residential market for the first time, and appears to have Maryland and Massachusetts in its sights.

Wyoming, meanwhile, is already considering changes to its recently launched residential natural gas pilot.

In New Jersey, taxes, among other issues, raised their head during noncore unbundling.

Georgia is taking another route. A failed attempt at a legislative solution to gas deregulation now pins hopes on consensus between utilities, marketers, industrials, and others. Hopefully, at least for those who plan to enter the residential market, Georgia will avoid the learning curve of Wyoming and New Jersey.


Competing on the Margin

UtiliCorp United, Inc. of Kansas City, MO, whose success signing natural gas contracts with McDonald's, Service Merchandise, and other chains put it on the gas retailing map, has dipped its toe into the residential gas market.

And what a market it is: About 55 million American homeowners use natural gas.

As a qualified gas supplier in Maryland and Massachusetts, the company's EnergyOne affiliate planned to compete for its share of the 16,000 customers up for grabs under separate pilot programs.

Richard L. Itteilag, UtiliCorp's network sales v.p., says that while the word "pilot" is common, the company considers these trials "a residential business, a long-term business." UtiliCorp wants to serve customers, then "own" them so that over time it can break even or, better yet, make money.

"The real early pilot was in Iowa," Itteilag says. That venture was pure market research for the company. Many participating companies lost money; Itteilag says UtiliCorp didn't. "Exit interviews" revealed why customers shifted suppliers, and UtiliCorp is using those answers to strengthen new programs.

What do customers want? Guaranteed savings. Which means that competition in the residential gas market comes down to price.

UtiliCorp is also preparing for Baltimore Gas & Electric Co.'s 25,000-customer pilot next year, New Jersey Natural Gas Corp.'s 30,000-customer rollout, and a 20,000-customer pilot in Pennsylvania.

How will UtiliCorp (em once said to be signing commercial-industrial contracts "like a Hollywood celebrity" (em measure success in the residential market? "For us to have in the multiple thousands of homeowners . ... We're shooting to have something like that within the next six months to a year."

UtiliCorp will have to win profits on razor-thin margins, sometimes measured in tens of dollars. Margins can be so thin that they render business not worthwhile. UtiliCorp opted out of Wyoming's pilot because the $25 to $50 rebates one marketer offered customers bumped the utility out of the market.

In Iowa, Itteilag says, "there wasn't even a prayer of breaking even." The big "winner" there, Equitable Resources, Inc., lost money. The Pittsburgh company successfully guaranteed savings, but also opened an office, hired staff, and