Competition Fails to Spark

Confusing plans, lack of savings keeps customers with their existing utility

By KENNETH AARON, Business writer  First published: Sunday, December 8, 2002

Most people have a MEGO -- My Eyes Glaze Over -- moment at the thought of analyzing competing electricity plans.

But not Jeremy Tschudin.

The retired high school economics teacher thought picking out a new provider would be an interesting exercise.

Until he actually spent six hours wading through the plans.

"After trying to figure it out, I thought, 'I can't figure this out,' " said the Chatham resident. Eventually, he concluded that if he saved any money, it would be only a few bucks a month.

"I couldn't believe it was the conclusion I was supposed to reach," he said. But it was what it was, so he's going to remain with New York State Electric & Gas.

Tschudin is among 800,000 NYSEG customers who have until month's end to decide whether to stick with the utility for their electricity needs or go to a competitor. If history repeats itself, they'll sit still, too. And there's no way to tell when retail electric competition will develop enough for them to want to join the market.

Almost all of the state's residential electric users, when faced with the prospect of choice, have passed on it. Five years after the Public Service Commission opened the door for competitive electricity suppliers to enter the state, just 5.3 percent of New York's households have left the arms of their trusty utility.

Sure, that Dec. 31 deadline has spurred many NYSEG customers to take an interest in utility restructuring. "We're just bombarded with calls," said Russ Southard, vice president of Mirabito Gas & Electric Inc. of Sidney, Delaware County, a company that is ready to sell electricity to NYSEG customers. "But they're very disappointed."

Here's why: They're finding that while deregulation sounds great on paper -- more competition, lower prices -- it has been less than that in reality for residential customers.

"The thing that ticks me off the most is all the PR and hype about how much change there is," Tschudin said.

State officials acknowledge that the transition to competitive markets has been slower than expected. "We have always viewed this as a transition, more like a marathon than a sprint," PSC spokesman David Flanagan said. "It's going to take time. You're dealing with changing a 100-year-old monopoly. It's going to take time for customers to get used to the changes that are taking place."

So why the delay?

Blame Enron Corp. Blame California. Blame the stock market and jittery financiers who don't want to back the construction of new power plants, which would pump more electricity into the market and drive prices down.

"The macro picture is not good for retail competition," said Gerald Norlander, executive director of the Public Utility Law Project in Albany, a group that helps low-income and rural consumers with electricity matters.

Others, including Assemblyman Paul Tonko, D-Amsterdam, chairman of the Assembly's Energy Committee, say the state should be blamed for not giving consumers who switch electricity providers the same protections as those who don't. The lack of deregulation education among consumers is another criticism some have with the state.

"Maybe more people would sign up if they knew they had the same protections," said William Ferris, a lobbyist with AARP, the Washington, D.C.-based advocacy group for people over age 50. Earlier this year, state legislators unanimously approved an AARP-backed bill doing that; it has yet to be signed by Gov. George Pataki.

All of those problems boil down to the one thing that consumers care about:

"There's not that much money there for a small consumer," the Law Project's Norlander said.

That wasn't the expectation five years ago, when state officials pushed through an electricity deregulation package aimed at cutting New Yorkers' electricity bills, which were among the nation's highest.

Big businesses have benefited the most. Just 6.4 percent of business customers have left their utility, but those companies represent nearly a third of the state's electricity load.

For a variety of reasons, just a handful of alternate suppliers are welcoming residential customers in upstate New York who want to switch their electricity provider.

"Not enough volume, low margins and those are the people that are on the phone taking up customer service time," said Mirabito's Southard.

On Wednesday, one of the four companies offering service to NYSEG customers, ECONnergy Co. Inc. of Spring Valley, Rockland County, pulled the plug on its offer because it has become unprofitable. The company enrolled 3,000 NYSEG customers, but will accept no more.

Now, just three companies remain.

Customers can stay with NYSEG and pay a fixed price for their electricity. But what they gain in stability, they might lose in savings: If the price of power tumbles, they'll still pay 4.86 cents a kilowatt hour. On the other hand, if rates soar, they won't feel the pain.

Other electricity suppliers are offering their own fixed rate, or one that goes up and down with the market.

Consumers trying to figure out their potential bills are getting tripped up by the complexity of the NYSEG plan, which experts say appears especially convoluted.

"Agway Energy Products is involved with eight different energy programs in two states, and I don't believe I've ever seen anything like it," said Michael Meath, a vice president for Agway.

NYSEG officials said in a statement that they are a "strong supporter of competition."

Electric bills are made up of two parts. One is for the electricity itself -- the actual electrons that are used to operate lights and coffee makers and televisions, for example. Retail competition invites consumers to pick the company that sells them this electricity.

The rest of the bill covers the cost of delivering that electricity over power lines to the home. That cost covers the bulk of a typical bill.

When state officials hatched their electricity deregulation plan, retail competition was viewed as a key component to help drive down New York's electricity costs.

Officials expected that lots of independent companies would stream into New York and build lots of power plants, creating healthy competition that would drive prices down. Then, retailers such as Agway, Mirabito and ECONnergy would step in and resell this electricity at low prices.

But those plants haven't been built. So there's not much gravity tugging down prices. And underwhelmed consumers aren't exactly insisting on change.

"We're not out there beating our chests because it isn't going to be super-beneficial," said Southard of Mirabito. "It's going to be a game of tenths of a cent."

Chatham retiree Tschudin, who did the math, said he figured he would save about $1.20 a month on his electric bill.

But even that small amount is worth chasing, some say.

"If you're walking down the street and see a dollar, do you bend down and pick it up? Or do you have to see a 20?" asked Jonathan Gewirtz, an ECONnergy spokesman.

Gordon Boyd's Saratoga Springs company, Salerni & Boyd Inc., puts together electricity packages for large groups, such as chambers of commerce. He argues that while NYSEG's literature is dense -- and hard for him to understand -- there are savings.

While most customers might be interested in switching only for savings, some companies are avoiding a battle based on rates and concentrating on other factors instead.

"While price is important, that's not the only potential benefit of a competitive market," PSC's Flanagan said.

A few innovators even promise higher prices: For a premium, they'll sell you energy from "green" sources, such as wind or solar power.

Others, such as Agway, offer customers a raft of services. A homeowner who buys natural gas from Agway gets free home-heating repair included in the rate.

"It's all about differentiating ourselves from the utility," said the company's Meath. "We're not just selling you a commodity."

Several experts referred to the rocky early days of telephone deregulation as a model that might be followed with electricity. Tschudin recognized that. "In many ways, that's worked out wonderful," he said. He can buy a telephone at the store for $10, instead of having to lease a clunky black one from Ma Bell, he said.

But it will take time.

"These programs are going to take awhile to catch on," Boyd said. "The programs are good. It's just going to take awhile to catch on."