As the retail market for natural gas and electricity moves into the competitive arena, few of the largest marketers are lining up behind Enron to serve small residential customers. El Paso Energy was the latest to declare its preference for large customers, saying it was closing regional offices in four eastern cities.

Offices in Atlanta, Philadelphia, Pittsburgh and Syracuse were closed at the end of January in a “strategic move to keep our focus on the wholesale market,” spokesman Russ Roberts confirmed. “This is another step in the reorganization” following El Paso’s acquisition of Tennessee Gas Pipeline. He said the decision was announced in mid-January to close the offices. Most were very small, one or two person operations inherited from Tennessee.

Marketing efforts will be coordinated from Houston and “will be focused on large purchasers, including utilities, industrials, electric generators and retail aggregators.” El Paso Energy Marketing had been active in the unbundling debate surrounding Atlanta Gas Light and deregulation in Georgia.

Engage Energy has been involved in three gas pilots and one electric pilot, but Engage’s Don Fishbeck said the firm plans to stand clear of residential services until true competition is allowed to develop. “There’s too much uncertainty in that market. No one knows what regulators are going to do. One state is different than another. It’s all pilots and they are not a true test of competition.

“We’re taking it one step at a time. We’re not gearing up for the shotgun approach across a few states here and a few there. We’re concentrating on getting our electricity platform up and running and working on the energy services side of things: asset optimization, modeling, fuel management.” In addition to the regulatory uncertainty, he said nearly every company attempting small customer services has found profits difficult to come by, if not nonexistent. Part of the key is offering combined services, but Engage isn’t “ready for that yet.”

While Duke Energy, NGC Corp., Southern Energy Marketing (Vastar-Southern) all have shied away from the small customer retail market because of uncertainty over deregulation, slim margins and other reasons, Enron Energy Services (EES) has spent millions in television and magazine advertising targeting the homeowner and small business owner. With most of the other big players stepping aside, Enron believes it is poised to dominate that market.

“We think the debate over deregulation is essentially over,” according to Lou Pai, chairman of EES. He told reporters in Washington by the end of 1998 over half of the residential market for both electric and gas would be slated for open access from state initiatives alone.

A year ago, when Pai formed Enron Energy Services, about nine states had enacted some form of comprehensive legislation that when played out represented about 20% of the market. In 1997 another seven states passed legislation, opening another 20%. “In 1998 we expect several more states to follow that trend,” said Pai. “By the end of 1998, we’re going to have over 50% of the market open to competition, offering companies like Enron direct access to the end user for the very first time.”

And Enron plans to dominate this new market.

“We think this will be a gateway to an explosion of new modern home appliances. If you look at consumption today, nobody turns their air conditioning down at 4 p.m. on a July day when it’s 99 degrees out because the price they pay for electricity is the same price as they pay at 3 a.m. in April. If you get real-time pricing, suddenly you’ll get peak and non-peak usage.”

EES will begin offering market prices in California in the next year by offering lower prices on weekends. The company will also install real-time metering. “We’ve been working with Amtel, Motorola and ABB to develop an automatic meter that gives real time pricing, both to the home as well as to commercial and industrial customers.” Pai said this on-the-shelf technology uses two-way paging to feed information from home consumption and back again. This could lead home owners to scale back usage during more expensive hours. “People may end up changing what time of day they do laundry,” said Pai.

“The fundamental change here is on the residential side. We’re going to change the way people consume natural gas and electricity. And that’s going to have major consequences across the entire structure of the industry, and all the other related industries.” Pai said the Pennsylvania Public Utility Commission decision scaling back the amount the Peco Energy could recover in stranded costs and making it easier for other marketers to compete was a watershed event for residentials. Enron, which precipitated the PUC decision by offering to take over the Philadelphia utility’s business and offer lower rates, now is hiring marketers in Pennsylvania. Pai believes other marketers will be descending on the state, making it “a market hub for gas and electric trading.”

(Peco is continuing to fight the decision in the courts, but there is no stay on the order, and electric competition in the state is expected to begin early next year. One fallout from the landmark 3-2 decision is that Commissioner John Hanger, who led the majority to overturn Peco’s own plan, may not be asked to continue on the PUC when his term expires next month. The Pennsylvania governor has studiously avoided making any commitments on the possibility of Hanger’s reappointment.)

Sarah McKinley

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