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October 1999 Deregulation Series
Utilities Mull Marketing Strategies
What Role Will Regulators Play?
Who Will Protect the Poor?
More Options for Small Business
Pepco Will Auction Off Its Plants
Environmental Impact Uncertain
An Example of What to Expect
States Deregulate, Congress Debates
Columnists
Cash Flow
Albert Crenshaw says its the same old song. Big business and large-volume users will benefit, while homeowners will likely lose out.

Investing
Investing in utilities used to be easy. Fred Barbash points to where the better investment bets can be found in a more complex, deregulated market.

Color of Money
With deregulation spelling the likelihood of more phone solicitations, commercial ads and legal fine print, Michelle Singletary is tense with anticipation.

Preparing the Pitch for Delivering the Juice

By Peter Behr
Washington Post Staff Writer
Sunday, October 17, 1999; Page H01

Maybe you've been thinking that electricity and natural gas are just plain old electrons and hydrocarbon molecules that you can pay for and ignore.

Well, the energy industry wants to upgrade your attitude.

Mimicking the sales barrages of the long-distance telephone industry, electric and gas suppliers within and outside the Washington region are preparing a major marketing blitz over the coming year to persuade businesses and households to sign up for services.

Competition among natural gas suppliers has already begun in the District and, in limited ways, in Maryland and Virginia. It will accelerate next year as more Maryland households are permitted to choose suppliers and as Richmond-based Dominion Resources Inc. expands into Northern Virginia and the Maryland suburbs.

Next July, Maryland will open its doors to full-fledged competition among electricity and gas providers, assuming final regulatory approval this fall. Power-buying options will expand gradually in Virginia next year, while in the District the debate is just beginning.

But the campaigns are being readied. You may be hit by telemarketers, although some companies vow they'll veto that maddening approach.

Your mailbox will fill up with direct-mail pitches from energy companies, while some will go door to door for business. You certainly won't escape the mass-media advertising aimed at cementing the energy providers' names in your skull.

The names will include deregulated divisions of the Washington region's historic providers, such as Potomac Electric Power Co., Virginia Power, Washington Gas Light Co., and Baltimore Gas and Electric Co. They'll be facing rivals from northern, midwestern and southwestern states.

Because an electron really is just an electron, many energy providers will compete by undercutting each other's prices.

Ed Mayberry, president and chief executive of Pepco Energy Services, says some competitors will offer a fixed price for a year's service. Others will offer lower basic rates, with surcharges for heavy uses. His company is still exploring its strategy, he said.

Other firms will push convenience, bundling electric and gas service in a single package for households and businesses. And others still will try sweetening their offers with special icing, such as memberships in discount buying clubs or warranties on homeowners' appliances.

Customers will hear about the virtues of "moral" electricity produced by environmentally sensitive means — most likely at a higher price than the less-moral conventional generation.

In states that have already opened up, power companies have offered a free month of service, or inducements to combine gas and electric services, said Wayne Harbaugh, executive director for pricing strategy at Baltimore Gas and Electric.

If you're like my wife, who changes long-distance phone companies almost every month to cash in on their switch-to-me incentives, you may one day be winging your way to California on free airline miles from power companies, as we are. Or you may just give up in confusion and stick with your current supplier.

"You'll see a lot of innovative services," Harbaugh predicted.

When the campaign reaches full volume in Maryland next year, it is likely to mimic the Babel of long-distance marketing wars. And some consumer advocates fear that buying your own energy may be even more confusing for residential customers than picking a phone service or a cell phone.

Consumer education campaigns in states that have deregulated electric and gas service have gotten across the basic point that customers have choices, said Michael J. Travieso, the Maryland people's counsel. "They've been less successful in actually helping customers figure out how to make that choice."

Travieso and utility executives vow to do a better job of explaining things to Maryland customers.

But the potential for confusion is great.

The bills will look different, because under deregulation there are separate charges for generating electricity, transporting it to a customer's area and finally delivering it over lines to the home.

Under current plans, Maryland customers will not only be able to choose an electricity supplier, for instance, they must also decide whether they want to be billed by their current distribution company or by their new electricity supplier — or receive separate bills from both.

Hopefully, regulators will make this task less complicated than the telephone bill, said Russ Root, Pepco manager of revenue accounting. But he added: "I don't think we've really arrived at a solution yet."

The winners in the competition will be the companies that make it easiest for customers, said Doug Elliott, vice president of First Energy in Akron, Ohio. "Somewhere, somebody will make it really simple, like a dime a minute on telephone calls. If not, the residential customers will just throw up their arms and say, 'There's nothing for me here.'"

But simplicity won't work if the service breaks down, as it did for Pepco's Root. Several years ago, he switched from Washington Gas to a new natural gas supplier from outside the Washington area — he won't say which one.

The new supplier offered an $80 rebate. "I was curious," he said.

His first two monthly bills were wrong, he added. Then he didn't get any bills for eight months.

After repeated telephone protests, he reached a vice president at the gas company, who promised to send one new bill a week for eight weeks, to catch up.

He recalls one conference call with the company's officials trying to reconcile differences in the bills. "They said, 'We're within 40 cents [of what he owed]. Is that close enough?' It wasn't pleasant."

The extent of competition depends on rules that are still being written or considered by lawmakers and regulators in Virginia, Maryland and the District.

Assuming that Maryland's Public Service Commission deregulates that state's energy markets next July 1, according to a proposed plan, Dominion intends to offer combined electric and gas service in the Washington area.

"We're very interested in Northern Virginia, and we think we're also pretty well known in the Maryland suburbs," said Tom Farrell, CEO of Dominion Generation, his company's power-supply subsidiary. "I can't tell you our secrets, but we're looking for a variety of [marketing] approaches."

Pepco Energy's Mayberry said his D.C.-based company will offer Maryland customers a home warranty program for electrical appliances. "We intend to make it easier for people to deal with appliance breakdowns — not just the cost, but the hassle," he said.

His Pepco division — separate from the regulated utility business — will contract with appliance-repair firms to promise 24-hour service when a refrigerator or dishwasher gives up the ghost.

DTE Edison America, the holding company for Detroit Edison, says it will offer Maryland customers membership in a buyers club. Customers who pay a modest monthly charge can buy electricity at wholesale rates and also receive savings discounts at selected retailers.

Whatever the inducements, utility executives confidently predict that deregulation of energy suppliers will present bargains to customers.

In Maryland, which has had the longest experience with competition among natural gas suppliers, regulators estimate that customers saved 5 percent to 10 percent off their bills last year.

And Maryland's electricity customers stand to gain a 3 percent to 4 percent reduction in their bills beginning next July if the pending deregulation plan is approved. An agreement among power companies, the Maryland people's counsel and other parties mandates lower charges on delivering electricity to customers for four years.

From the suppliers' viewpoint, Maryland's prices may be set too low to make it worthwhile to chase residential customers, said Suzanne Daycock, executive director of the Mid-Atlantic Power Supply Association. She hopes to persuade regulators to raise the price level. Otherwise, there may be only local competitors vying for residential customers in the state initially, she said.

"That can change tomorrow," she added. "We're all convinced there will be a residential market someday."

But for nearby competitors like Dominion, Maryland is a definite target. "We're interested in that market right now," Farrell said.

Staff writer Martha M. Hamilton contributed to this report.

© 1999 The Washington Post Company

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