Utilities Face Onslaught Of Competition Deregulation May Make Power Providers Compete For Every Household
Second of two parts
Break up the monopoly game.
Although Northwest residents can’t pick their power company yet, the day is coming when utilities that once had an unchallenged grip on their customers will have to compete for every household.
Many companies that never before sold electricity in the region are moving into position. Familiar names such as Bonneville Power Administration, Portland General Electric and Washington Water Power Co. soon will be joined by the likes of Enron, Cinergy, even Southern.
These energy giants are vying for the region’s market and resources, while Portland’s PacificCorp and Spokane’s WWP hone their expertise selling power to the Middle West and East.
In the process, many utilities are finding partners and forging alliances with companies that complement their own.
The scramble is shaking an industry marked for decades by its stability.
Take PanEnergy Trading and Marketing as an example.
The company started selling natural gas and electricity from a small office in the Spokane IBM Building three years ago. Then known as Associated Power Services Inc., it was a subsidiary of PanEnergy Corp., a Houston-based pipeline company.
Then Mobil became a partner.
Earlier this spring, Duke Power Co. announced it would buy PanEnergy. Duke, based in North Carolina, is one of the largest sellers of electricity in the United States.
In the meantime, Duke and Louis Dreyfus, also a major energy wholesaler, announced a joint venture with Puget Sound Energy which will be based in the Seattle area.
Steve Kern, managing director of PanEnergy Trading and Marketing in Spokane, says that kind of firepower is needed to survive in a rough-and-tumble energy market.
“I cannot believe how fast things are moving,” he said.
Big companies can obtain more credit on better terms than smaller players like WWP, he said, adding that deep pockets are an advantage when margins are thin and risks are substantial.
Kern said the Northwest utility industry of the future could look much like that of the past, when a huge holding company owned several of the region’s private utilities, including WWP.
As an example of what PanEnergy is doing, Kern pointed to the utility district serving Springfield, Ore., which once bought all its power from the Bonneville Power Administration.
PanEnergy schedules power by the hour from as many as 50 different suppliers, he said. The result: an estimated 20 percent savings on energy costs.
Kern said utilities in other communities will have to re-evaluate their allegiance to BPA and whether they can manage resources as well as companies such as PanEnergy.
“Every utility out there is going to have to make the same decision,” he said.
“You’ve got to merge up or ally yourself,” agreed Bill Gains, vice president of Puget Sound Energy.
He said Duke/Louis Dreyfus is planning a network of regional relationships to build its energy empire.
“It will be a high-volume, low-margin business,” he said.
“There’ll be just a handful of dominant players nationwide.”
Another ambitious player moving into the region is Enron, also of Houston. Next month, Oregon regulators are expected to approve its $3.2 billion merger with Portland General Electric Co.
To get that consent, Enron had to agree to $141 million in rate reductions for Portland General’s 660,000 Oregon customers.
The company also had to allay fears among Portland General workers over blunt remarks in April by Enron President Jeffrey Skilling, who told an industry conference that deregulation means deep job cuts.
“You must cut costs ruthlessly by 50 (percent) or 60 percent. … Depopulate. Get rid of people. They gum up the works,” Skilling said.
Entry into the Northwest will give Enron and Duke/Louis Dreyfus access to the deepest pool of cheap hydropower in the country.
But not all challenges to the status quo come from outside the region.
Last month, WWP created Avista Corp. and two operating divisions, Avista Energy and Avista Advantage, to expand its energy brokering and other services in a nonregulated market.
Avista Energy officials quickly announced a deal with the Chelan County Public Utility District that grants Avista the right to sell surplus electricity from the PUD’s dams on the Columbia River.
To help find customers, Avista added former BPA Vice President Judi Johansen as its vice president of business development, with an emphasis on areas along the Interstate 5 corridor.
Avista Energy also has hooked up with Mock Energy Services, a major natural gas supplier in California.
And in July, Avista Energy will open an office in Houston, Enron’s headquarters.
“I respect Enron, but I don’t fear them,” said WWP President Les Bryan.
He said WWP expects to strike more deals in the next year or two. “We’re going to grow our company and our capabilities,” he said.
Bryan recently suggested the company would like to sell surplus electricity from the Bonneville Power Administration, which markets 40 percent of the power consumed in the Northwest.
“BPA wants to compete with the WWPs and Enrons. They need to back away from that,” he said.
BPA, however, rules nothing out, said spokeswoman Dulcy Mahar.
The agency’s future will be decided by Congress and residents of the Northwest, she said, adding, “I don’t think anything is off the table.”
Not every development will be a mega-deal.
WWP and Inland Power & Light Co. are exploring ways to share line crews where their service territories overlap.
And on the West Plains, said Inland Power & Light Assistant Manager Dave Clinton, the two utilities are near agreement on an arrangement that would give Group Health Northwest’s headquarters building access to power from both companies in case an emergency drops service from one supplier.
That simple accommodation is the kind of thing that ultimately may decide who survives deregulation.
“Customers are going to be driving most of the changes in the industry,” said Clinton.
, DataTimes ILLUSTRATION: Graphic: WWP Service area