Although often seen as effective vehicles for achievingcompetition, pilot programs also are being used as a “delayingtactic” by some natural gas and electric utilities that aren’tbullish on the idea of bringing customer choice to their markets, amarketing official charged last week.

“Unless a state is under a legislative mandate [to implementcustomer choice] by a certain point and time, what the utilities dois they file for a pilot that is so limited in size” that itamounts to a token gesture. “This way they can say they’re doingsomething about it in terms of good PR, but it’s so limited in sizethat it’s really kind of delaying the [competitive] process,” saidSharon Hillman, senior vice president of MC2, the retail marketingarm of KN Energy. For competition to flourish, mass marketers-suchas MC2 – need large, open markets.

But these “pilots are so small in size that they don’t makesense for a mass-marketing process because you [as a marketer]can’t cover your overhead since there aren’t enough customersavailable,” she said following remarks to the National Associationof Regulatory Utility Commissioners’ Winter Meetings in WashingtonD.C. last week.

The use of pilots as a “delaying tactic” can be seen inIllinois, Michigan, Wisconsin and Indiana, where there’s “no clear”legislative mandate to open up gas and electric markets, she noted.”…[T]he utilities can kind of write their own rules via the pilotand the [state] commissions can’t really do a whole lot about itbecause there’s not a clear ability for the [them] to make majorchanges.” On the other hand, this isn’t a “big issue” inPennsylvania and New York, which have embraced competition in theirenergy markets.

She noted that MC2 has been very selective in the pilots pickingones large enough to justify the spending of huge amounts onadvertising, customer care and systems. Examples of such gasprograms would be the ones offered by Nicor Inc., parent ofNorthern Illinois Gas., and Peoples Gas Light & Coke, both ofwhich “opened up markets of 20,000 commercial customers.” She alsogave high marks to Columbia of Ohio’s statewide plan, “wherethey’re opening the entire service territory at once. That’s whatwe mean by a truly open market as opposed to a pilot.” In contrast,the pilot of Northern Indiana Public Service (NIPSCO), whichprovided marketers with a shot at only 1,500 commercial customers,was one that MC2 chose to pass on, Hillman said.

“I think you’re eventually going to see the other massmarketers-whether it be credit card companies, or the phonecompanies or Wal-Mart getting into this business,” which is goingto be a very different business from the traditional energybusiness. “It is not a supply or cost-oriented business. It’s abusiness that measures the efficiency around informationtechnology, marketing strategy and finally energy expertise.”

Jim Abcower, senior vice president of operations for NIPSCO,agreed. “What’s going to happen is Wal-Mart’s going to perfect thepitch to our customers. They’re going to do a very, very goodretail sales level job of making somebody feel comfortable veryquick that they’re going to get value, and they’re going to make itvery easy for those customers who are pushing their carts down theaisle to make that choice as they go by. There’s a chance thatthey’re going to be the successful marketers of natural gas 10years from now.”

©Copyright 1998 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press,Inc.