Restructuring Today
April 26, 2006

Goodman calls WGES hero of Maryland, Delaware market

Last week's events in Maryland and Delaware show what competition and choice are all about, NEMA President Craig Goodman told NEMA's annual meeting.

          He's talking about white knight Washington Gas Energy Services (RT, 4/25, 4/20) coming into both markets and guaranteeing residential customers below-utility rates -- even when the utility rate is mitigated.

          The response from politicians and regulators has been huge, Goodman noted, and is worth millions of dollars of publicity that you just can't buy.

          Goodman lauded WGES President Harry Warren as a "hero" of the industry for giving Baltimore Gas & Electric customers the chance to save 10% off mitigated utility rates this summer -- without having to defer anything, borrow anything or pay anything back.

          WGES' actions show how markets work for customers -- giving them an alternative.

          Marketers are here to serve the mass market, he explained.

          Opening markets wasn't about giving only big C&Is price breaks and choice -- although that's an important business.

          It was about giving small residential and commercial customers more options at competitive prices, Goodman argued.

          Markets aren't fully competitive unless low-income residential customers are getting three to five competing offers, he added.

          NEMA is "very concerned" about high energy prices, Goodman explained.

          High energy prices are one of the most regressive taxes around, he observed.

          Low- and fixed-income buyers are hurt the most, he said, for fundamental necessities such as power and gas.

          Of course, that just drives political pressure against markets.  High prices will always prompt calls to re-regulate the market, Goodman noted.

          Knee-jerk political reactions such as price caps are the easiest thing to do.

          It's been happening throughout history, he reminded, going back to the energy crisis of the 1970s.

          Goodman has seen this winter the highest prices of his life and probably all of history, he said.

          He thinks the market is seeing "political" prices -- driven up by risk premiums rather than supply-demand interactions.

          Acquisition costs are still one of the biggest challenges facing marketers, Goodman observed.

          He attacked letting utilities -- instead of their affiliates -- offer customers competitive products, especially fixed-price contracts.

          It gives utilities free customer acquisition without risk, Goodman noted. 

          That's just not fair.

          Utilities already have a big edge in branding, Goodman reminded, and through customer inertia about shopping. 

          Letting a monopoly give customers competitive choices isn't going to result in competitive prices, he argued.

          Utilities will have a huge jump on marketers from day one and dollar one -- making the market not viable for competition.

          Goodman touted marketer-referral programs -- such as Orange & Rockland's in New York (RT, 4/21) -- and giving marketers access to utility customer lists.

          Of course, making utilities buy marketers' receivables is a big plus, Goodman said.

          In fact, it can even turn uneconomic markets into economic ones.

          Marketers saved enough money through not having to operate their own receivables in New York. 

          That deed opened up 1 million new customers to shopping, Goodman said.

          Inaccurate prices to compare and shadow billing keep frustrating marketers, Goodman added.

          Utilities typically can't even reproduce their own calculations to get the comparison prices, he claimed.

          A good development is the emergence of retail market advocates as part of PUCs.

          New York has one and competition advocates have been proposed in Pennsylvania and Illinois.

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