End of the line? Retail electricity seller quits Bay State as many doubting deregulation's success

By Peter J. Howe, Globe Staff, 1/18/2001

assachusetts homeowners' last full-blown alternative to paying soaring utility power prices, Utility.com, quietly informed its roughly 1,000 local customers yesterday it is abandoning the state and throwing them back on utility power plans costing up to twice as much.

The departure of the California-based retail energy seller, which promised customers at least 20 percent savings off utility power prices when it entered the state 11 months ago, adds new weight to a question many government officials and industry analysts are now asking: Has the 1998 electric deregulation law been a flop?

By now, deregulation advocates said, the law should have cut prices at least 15 percent, while enticing a host of companies to compete for homeowners' electricity dollars with innovative alternatives to utility power plans.

But soaring global energy prices, driving up the cost of running power plants, have more than offset the immediate cost savings from the law.

And not only have higher prices failed to entice alternative residential electric suppliers to enter the market, the only two that have - Utility.com and Essential.com - have both fled. They say wholesale prices are too high and too volatile for them to make any money here.

''You would expect that if things were working the way they were intended, the prices now would be high enough that they would be encouraging competition,'' said Attorney General Thomas F. Reilly.

''It doesn't mean we abandon restructuring, but it means we make some mid-course corrections'' such as encouraging more innovative billing plans and stronger measures to promote competition at the wholesale level, Reilly said.

Michael Monahan, spokesman for NStar Electric, which had pushed for authority to charge higher power rates in part by arguing it would encourage more competitors to enter the market, said the utility is mystified. Monahan noted that many industry officials had said competition would thrive once utilities were pushed by regulators to stop charging below-market rates for power, a development NStar supported.

Utility.com officials did not return calls seeking comment. In an e-mail notice sent to local customers, it said: ''Because of soaring wholesale electricity costs, we have found that it is not possible to continue to offer you our electricity service at a price that is competitive. Therefore, we plan to stop offering our electricity service in Massachusetts'' after Jan. 27.

Utility.com served only the former Boston Edison and Cambridge Electric territories. It made a big marketing splash after it entered the market last spring, paying tolls for every driver passing through the Massachusetts Turnpike extension Allston toll plaza on April 28 to generate publicity.

Current Utility.com customers apparently will be put back on so-called default service from NStar, and could see their rates soar.

Affected customers could see their rates soar. Currently, Utility.com charges customers in the Boston Edison service territory 3.6 cents per kilowatt-hour.

As of this month, Edison charges default-service customers 7.03 cents per kilowatt-hour for power - 95 percent higher than the Edison rate - and Cambridge Electric charges 6.67 cents. Utility.com customers have continued to pay the local utilities for power transmission and customer-service charges, paying Utility.com only for the cost of power generation.

The fine print of Utility.com's contract warned customers that the company could jack up rates as of Jan. 1, and it is unclear why the company abandoned the market entirely when it could have raised rates 80 or 90 percent and still undercut NStar's price.

Ethan Cohen, a retail energy analyst with The Aberdeen Group in Boston, said he was surprised and disappointed by Utility.com's move.

While Essential.com was known for customer-service problems, Cohen said: ''I thought we finally had a worthy opponent who had a reputation for good customer service that would really distinguish itself in the market.''

Cohen said he thinks even with recent utility rate increases, there is still too much ''margin and price pressure'' for competitors to make money. ''These companies were not as savvy marketers as they could have been,'' Cohen said.

For Bay State homeowners, the only alternative to paying soaring ''standard offer'' and ''default service'' rates to utilities is Servi

Sense.com of Newton, which will take 5 percent off customers' electric bill if they also sign up for local and long-distance phone service, and not in all parts of the state.

ServiSense bundles and discounts the utility rate in its plan but does not offer competitively priced electricity.

While competition for residential customers has never attracted more than about 1 of every 750 Bay State households, it has steadily grown over the last year, to 2,848 homeowners as of November.

But on the business side, the number of commercial and industrial accounts using competitive suppliers has actually dropped by nearly 70 percent since last January, as companies found they would get a better deal buying power from utilities, even at increased rates, than they could get on the market.

Said David O'Connor, Massachusetts division of energy resources commissioner: ''Whenever anybody who is doing competitive supply leaves the state, it's disappointing news.''

But, O'Connor said, ''That may be a problem that may persist for some time yet. I certainly haven't promised that there would be an avalanche of competitive suppliers. In a way I am not surprised that we haven't seen a large number of companies come in yet.''

O'Connor said he attributes the reluctance of competitive power suppliers to enter and stay in the Massachusetts market to the choppy wholesale market, where suppliers have been spooked by periodic spikes, including a brief stretch last May 8 when prices soared to 200 times normal levels and produced an $80 million windfall for generators and brokers.

''The wholesale markets are in too much volatility for us to have a vibrant retail market,'' O'Connor said, adding that it will take time to make the wholesale power market competitive.

http://www.boston.com/dailyglobe2/018/business/End_of_the_line_P.shtml

-- Martin Thompson (mthom1927@aol.com), January 18, 2001