By DAVID BRINDLEY
Though much remains unknown about the coming deregulation of the electricity market, this much is certain: It has added a new level of competition for California's three biggest utilities.
Because utilities are required to be separate from marketing and reselling companies, Edison International, PG & E; Corp. and Enova Corp. (parent of San Diego Gas & Electric Co.) have set up their own unregulated power-reselling companies.
Enova has a joint venture with Southern California Gas Co. parent Pacific Enterprises, PG & E; has PG & E; Energy Services, and Edison has Edison Source. These companies have been relying on the strength of their utility parents, but also looking for cheaper power supply sources elsewhere.
In addition to these utility-operated resellers, one new local start-up has aggressively entered the market: New Energy Ventures, a Los Angeles-based power retailer.
Each of these companies is targeting large commercial and industrial customers, not only because they use more power, but because the utilities instituted a 10 percent rate cut for residential and small retail customers at the start of the year. As such, most modest energy users will likely continue to receive their power from the utilities for the near-term future.
Here are the major power players in the local market and their strategies:
- Energy Pacific
The offspring of Enova's San Diego Gas and Pacific Enterprises' Southern California Gas, Energy Pacific has the backing of the utilities' combined annual revenues of about $4.5 billion and 6 million energy customers.
If the merger of Enova and Pacific Enterprises goes through this summer, the newly merged utility parent, Sempra Energy, would be the nation's largest natural gas distributor.
Armed with the two utilities' customer bases, Los Angeles-based Energy Pacific has substantial leverage to sell power. Even so, it has to distinguish itself from the fierce competition in the unregulated power provider market.
Energy Pacific officials hope to break away by offering all-inclusive energy packages electricity, natural gas, site audits, strategic energy planning, energy efficiency and consulting services.
To that end, Energy Pacific last December acquired Houston-based CES/Way International Inc., the largest independent U.S. energy-services company. That allows Energy Pacific not only to sell power, but to upgrade its customers' existing energy plants and even build new operating plants for customers, such as the $7 million energy facility at DreamWorks SKG's Glendale animation studio.
Energy Pacific has also signed deals with San Diego-based Foodmaker, parent of the Jack in the Box chain, and Sears Roebuck & Co. Energy Pacific is also negotiating deals with the Los Angeles Unified School District and AT & T.;
- Edison Source
Though it has a lot going for it, Edison Source has gotten off to a slow start. It was started in 1996 as the marketing arm of Southern California Edison, the second-largest investor-owned utility in the nation with more than 11 million customers. But even with such a strong customer base, Edison can't seem to find its niche in the coming deregulated environment, according to Arthur O'Donnell, editor of the California Energy Market Newsletter.
While Edison will retain most of its residential and small-business customers, it stands to lose some of its largest accounts. In fact, last year SoCal Edison lost ground as big power consumers like McDonald's Corp. signed up with competitor PG & E; Energy Services.
In the face of such losses, Edison Source is keeping a low public profile. Spokeswoman Linda Yana said its policy is not to disclose the identities of its customers, though she added that aside from commercial business, Edison Source is targeting residential consumers with its "EarthSource" plan, which uses renewable energy sources like wind-generated electricity. "Not a lot of (other) companies are offering a straight residential product," said Yana.
O'Donnell said Edison Source is focusing on wholesale electricity and natural gas purchasing and negotiating with local municipal utilities to provide energy efficiency services.
- New Energy Ventures
Of the local unregulated energy providers, New Energy Ventures is distinct it's not a utility. And because it doesn't own transmission lines or produce power, its sole business is to buy and sell energy.
Under deregulation in California, utilities will continue to distribute electricity and service customers. But consumers will be free to buy their energy from power marketers such as NEV. These resellers will buy power from utilities and generators across the country, searching for the best deals available. Resellers will then pay a fee to local utilities to use existing lines to transmit power to their customers.
"We are a pure retailer," says Michael Burke, executive vice president of NEV. "That's all we do."
That, and marketing, which NEV has been aggressively doing since Michael Peevey, former president of Southern California Edison, started the Los Angeles-based company in 1995.
California's high electricity rates about 30 percent above the national average make finding cheaper power an easier sell. NEV has contracted to buy hydroelectric power from Washington state's Bonneville Power Administration at bargain rates. As a result, NEV says it can offer its customers net savings of 5 percent to 10 percent.
That kind of savings has netted NEV contracts to provide energy to about 250 businesses statewide, of which about 130 are in the Los Angeles area. The largest customer so far is Ralphs Grocery Co., which operates 340 Ralphs and Food 4 Less grocery stores in Southern California.
All told, NEV has signed contracts with customers that will generate more than $400 million a year in gross revenues. NEV hopes to double that amount by the end of the year, continuing "to go full-speed ahead in marketing power," says Burke.
- PG & E; Energy Services
The strongest card for this energy marketing entity is its name. As a unit of San Francisco's PG & E; Corp., which serves more than 13 million people in California, PG & E; Energy Services has something of a ready-made market.
Founded in 1995 as Vantus, PG & E; Energy Services changed to its current name last April and launched itself onto the national level as a full-service energy provider to well-known companies.
Last November it signed a deal with McDonald's Corp. to provide electricity to the chain's 800 restaurants in the state, about half of which are in Southern California. Retailer Neiman Marcus has also signed up for power and energy management services for its 30 stores nationwide.
Much like other utility subsidiaries, PG & E; Energy Ventures isn't just peddling power it's offering a full range of services, including site audits and overall energy management programs.
While still focusing on the commercial and industrial segment of the market, the San Francisco-based company is also targeting middle- and low-end commercial accounts, such as small hotel chains and restaurants with several locations. It sees its customized lighting services and energy-efficiency enhancements as particularly attractive to this market segment.
- Los Angeles Department of Water and Power
As a municipally owned utility, the L.A. Department of Water and Power is not required to deregulate on March 31. It must, however, decide whether to opt for deregulation by Jan. 1, 2000. Though DWP has not made a final decision, it is taking steps toward deregulation.
DWP brought on David Freeman as its general manager last September, ostensibly to get the utility ready for deregulation. Since then, Freeman has begun undertaking restructuring moves aimed at significantly reducing the agency's $4 billion debt load.
Among the more controversial of those moves was his plan to lay off up to 2,000 workers. The L.A. City Council last week approved a $346 million buyout and severance package to entice DWP workers to retire voluntarily.
In practice, DWP will have to deregulate to keep its business customers from moving to lower-cost, deregulated service areas.
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