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Home Utility Customers Cool to Switching

Energy: Amid deregulation's meager cost incentives, only 0.4% of those eligible have filed to change vendors.


With the financial incentive to switch meager for now, the vast majority of California residential electricity customers are staying with their utilities and spurning the offers of outside power marketers.

As of March 31, only 34,388 residential customers statewide--or 0.4% of the 9 million eligible--had filed for permission to buy energy from companies other than Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric, the utilities that serve 70% of the state's customers.

Industry analysts said residential customers have been put off by the confusion surrounding the delay in the start-up of California's Power Exchange and unimpressed with savings that typically amount to a dollar or two a month.

Provisions of the 1996 electricity deregulation bill mandated a 10% rate cut, effective Jan. 1, for all customers of Edison, PG&E and SDG&E.

Whether consumer response has been stronger or weaker than expected was the subject of debate this week after Houston-based Enron said it was pulling out of the residential energy market after spending $5 million in a highly publicized sales effort.

Enron will keep the 30,000 customers it has signed up but will cease all new marketing. The company will continue to market energy services to business and industrial customers, the sector that is expected to account for most of the privatized power market for the foreseeable future.

Power marketers seem to have achieved much better success going after large business and industrial customers. More than 20,000 businesses statewide now buy their energy from power marketers, accounting for roughly 10% of all the energy being bought and sold over the state Power Exchange. The rest is bought by Edison, PG&E and SDG&E for the customers they have kept.

Enron spokesman Gary Foster said his company expected up to 700,000 residential utility customers to bail from their utilities in the initial phases of electricity deregulation. But only a tiny fraction of that have done so.

Others said the residential response has met their expectations, given the slight incentive that consumers have to switch, at least until early 2003. That's when California's electricity customers will have paid off the cost of nuclear and alternative energy projects that now represent more than a third of a typical utility bill.

Consumers aren't the only ones who see little benefit in switching. The companies that serve them aren't finding it profitable, either.

It often takes the same amount of overhead to service an account whether the user is an apartment dweller or a convenience store, said Tony Wayne, chairman of Eastern Pacific Energy, a Brea-based power marketer that sells to residential customers but only those grouped together in apartment buildings or mobile home parks.

The low consumer response to direct marketing "sort of confirms that making money in the residential area is a tough proposition," said Bob Stevens of Mercer Management Consulting, a New York firm specializing in utilities.

"The expenses in doing residential business, in billing and meter reading, can exceed any margin on a small account," Wayne said.

Michael Burke, executive vice president of New Energy Ventures, a Los Angeles-based power marketing firm that has sold $700 million in energy contracts to business customers, said the tepid residential consumer response so far is no surprise.

Burke said the residential market will start growing in a year or so when outside companies gain permission to get involved in customer billing and meter reading, which will give them the opportunity to bundle power sales with other services, such as telecommunications, "putting us in direct contact with customers."

Julie Blunden of Green Mountain Energy Resources, a Vermont-based marketer of "green energy" that is active in California, said its energy sales are "right on track. . . . It's going to take a while for consumers to get over the 'huh?' response on consumer choices." Green Mountain charges customers a premium above market rates for energy from clean sources.

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