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Willamette Week has learned that the national power giant, which has been marketing electricity to 48,000 Oregonians in a free-market pilot project since December, will no longer seek new residential customers after April 30. The decision, outlined to WW by PGE President Peggy Fowler, raises serious questions about the deregulation experiment in Oregon and the nation. It comes on the heels of Enron's startling announcement last week that it was opting out of the newly deregulated California energy market. (California's utility industry was deregulated on April 1.) Enron's move to bail out of California's lucrative, 8 million-customer market after sinking $10 million into advertising has industry observers questioning the legitimacy of deregulation. TheWall Street Journal, which broke the California story, labeled the move a "setback." While the decision to quit California was surprising, the decision to sign off on Oregon's free-market test run is truly shocking and politically suicidal. Enron was never happy with California's quasi-free-market model in the first place; the arrangement stuck new competitors, including Enron, with debts incurred by California's previous energy monopolies, like Pacific Gas & Electric. By comparison, Enron and its local subsidiary, Portland General Electric, have been hyping the Oregon pilot project for months, holding it up as proof that the free market can work for Oregon's residential utility customers. The pilot project--in which Enron competes with its own subsidiary, PGE--was set up in Hillsboro, Sandy, St. Helens and Oregon City. In fact, one of the reasons Enron paid $3.2 billion for PGE last year was to create a market where it
didn't have to battle a combative incumbent monopoly as it did in California. Now, rather than competing with Enron, Portland's incumbent, PGE, is coordinating the free-market pilot and even promoting it in monthly billings. The test run in Hillsboro, Oregon City, Sandy and St. Helens started in December and is expected to run for a year. The 48,000 residential customers in those four cities can now get their electricity from a company other than PGE. Ideally, five to 10 companies would have set up shop to compete for residential customers, but as it worked out only two energy providers showed up: Enron and a start-up called Electric Lite. The energy companies have used everything from direct mail to information booths at gas stations to alert eligible customers about the project, often hyping rates that are 10 percent lower than current rates. "For a typical...residential customer, that adds up to yearly savings of $84," an Enron ad boasts. The sales pitch seemed to be working--at least for the two companies competing for customers. On April 16 PGE issued an evaluation of the pilot project reporting that 13 percent of eligible residential customers have dropped PGE for one of the new companies. (In California, only 1 percent have switched.) Electric Lite says it has signed up 3,600 of those customers, leaving Enron with 2,600. Apparently that wasn't enough for Enron. Neither Enron officials in Houston nor local company reps for the Oregon pilot project returned WW's calls. Judging from Enron's decision in California, it seems clear the company didn't find the residential market profitable. PUC utility analyst Bonnie Tatom says the profit margins in Oregon, where residents enjoy some of the lowest rates in the country, weren't as high as the earnings in California. Lee Sparling, utility analyst at PUC, said Enron's decision to quit the pilot project could hurt the company's ability to convince lawmakers that deregulation can work for residential customers. Sparling said there was some sense to Enron's decision in California because that market wasn't truly deregulated, and it was difficult to offer competitive prices to consumers. "I don't see that logic here," Sparling said. "It doesn't fit except that it's part of their general retrenchment." Consumer advocates at Oregon's Citizens Utility Board have been skeptical about the idea of a free market for electricity since the outset of the pilot project. Enron's decision in Oregon, they say, proves their point. "It shows that's there's not a competitive market for residential customers," says Bob Jenks, director of the Citizens Utility Board. "To go forward [with complete deregulation] without some determination that there's a market is bad public policy. We didn't think there was a market before; now we know there isn't one." While Enron-PGE had been holding up the pilot project as a model of deregulation where consumers would savor choice, Jenks and CUB have consistently argued that there is no market for an essential commodity like electricity. "People just want affordability, reliability and stability," says Jason Eisdorfer, CUB's representative on a task force that monitors the pilot. "That already exists in Oregon. Enron's philosophy that customers want a choice on this essential commodity is being tested and they're losing the PR battle." Karen Lee, spokeswoman for Enron subsidiary PGE, downplayed Enron's decision to click the switch. "The pilot has been a learning process, and we've learned that the residential market is slow to leave the incumbent utility. I don't think anyone will write this off as not worthwhile." Meanwhile, no one--even adamant critics of deregulation--doubts that there's a market for industrial and commercial customers; in fact six companies, including Illinova Energy Partners, have signed onto the the pilot to compete for that market. But the lack of participating companies on the residential side--and Enron's failure to actively stick with its own pilot--has led to skepticism about the existence of a consumer market at all. "If they're not doing any marketing," says Eisdorfer, "the market is dead." |
