Fortnightly Magazine - April 15 1997

The Palm Springs City Council has approved a contract with Portland General Corp., the parent company of Portland General Electric, which specifies the roles and responsibilities of both parties as the city establishes a new utility, "City of Palm Springs Energy Services."

Last December, Palm Springs had selected Portland General to become the city's new energy services partner to help it develop a municipal utility to compete in a deregulated marketplace.

Do electric utilities understand how to earn profits for shareholders in a competitive market?

Here's one way to look at the problem. Gather a group of financial experts and ask this question: If a company's long-term bonds are rated AA, and yield 8 percent, what minimum return would you require from dividend yield and price appreciation to induce you to buy that company's stock?

The typical expert will say 12 percent, indicating a 4-percent premium (or spread) above AA bond yields.

Loyalty may depend more on age group than anything else.

Utilities may want to start asking their customers some personal questions.

Such as: "How old are you?"

Why? Because customer behavior may have more to do with age and other demographics than anything. For instance, younger customers compose the highest-switching segment. However, older customers tend to have more loyalty. But so too, these loyal customers are the hardest to woo from another supplier.