The State’s New Power Brokers

Articulate and armed with the tools of his trade--glossy brochures and a well-oiled spiel--salesman Tony Wayne drew charts on the conference room wall as he tried to persuade his poker-faced potential buyer that he could beat the competition with the lowest price possible.

At the top of his game, the graying ex-Marine Corps officer paused only to field questions from his quarry, Lewis Homes property manager Paul Lubin. Simple answers to complex issues came easily and nothing threw him off stride. After all, Wayne had given dozens of presentations just like it during the last year.

“Bottom line, we save you 5% to 15%, you’re at no risk, and you have 100% reliability, just like now,” Wayne, 57, said in a calm, assuring tone as he slid a contract across the table.

Scenes like this one are played out countless times a day across California--that of a practiced peddler seeking a lucrative prize. But Wayne is a new and different kind of salesman. He’s not pushing computers, retirement plans, aluminum siding or locomotives.

He is selling electricity.

There is a small army of Tony Waynes called “power marketers” fanning out across the state as the Jan. 1 date of California’s electricity deregulation approaches. All are vying for a piece of a $6-billion market by hustling electrons to millions of California residential and commercial customers who may soon start choosing their power source.

It’s part of a marketing free-for-all that commenced in September when Gov. Pete Wilson signed the nation’s most comprehensive electricity deregulation law. It ordered that each residential and business customer of the three large investor-owned utilities--Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric--be given the choice of power source.

The upshot of the law is that Californians who previously thought about electricity only when they paid their monthly bills will soon be making choices on where to buy their power. And this will create billions of dollars in new business for companies such as Eastern Pacific Energy in Brea, where Tony Wayne works.

As Wayne noted: “Everyone in California is a potential customer.”

The emergence of a new power market echoes what happened when the long distance telephone market was deregulated a decade ago. Suddenly a basic service that required little thought becomes a major choice for consumers--and one that can lead to significant savings.

Wayne was wooing Lubin because of Lewis Homes’ extensive holdings in apartments, retail centers and industrial buildings where common areas--laundries, parking lots and so on--use $1 million worth of electricity a year. Wayne was only the latest salesman to promise Lubin to shave big bucks off his monthly Southern California Edison bill.

Lubin represents only a tiny fraction of the market up for grabs. National retail chains, manufacturers, breweries and the University of California system all are “pursuing price quotations,” said Mark L. Shunk, vice president of Energy Pacific, a power marketing venture set up by Southern California Gas and San Diego Gas & Electric.

Cities from Long Beach to Davis are considering bids from energy providers to power their municipal buildings. Wayne is also one of many bidders on the Long Beach contract.

California First to Deregulate

All that business--and California’s importance as a proving ground for power marketers as the rest of the nation deregulates--is attracting the biggest energy companies and utilities in the nation.

Enron of Houston, Southern Co. of Atlanta, Illinova near Chicago, PacifiCorp of Portland and Duke Power of North Carolina are here, as are smaller companies such as Green Mountain Energy of Vermont, a green energy retailer. Most have opened offices in California and unleashed hundreds of salespeople who, like Wayne, have one goal in mind: stealing customers away from the utilities.

Enron alone now has 300 employees in California, a “big chunk” of whom are salespeople, an executive said. Wayne’s Eastern Pacific Energy, a relative small fry, has a sales force numbering more than 60.

Smaller companies without the resources to send out salespeople or buy expensive air time and advertising space plan to use the Internet and mailing lists to reach what the marketers call “affinity groups” of consumers--those with shared interests or political beliefs.

“We’re going after ordinary folk who want their electricity purchases to reflect their values,” said John Schaefer, president of Clean Power Works, a Santa Cruz-based company that is selling geothermal, wind and solar power.

Altogether, more than 75 companies have registered to market power in the state. After Labor Day, many will launch mass media campaigns targeting residential customers.

Their opportunities flow from the promise of cheaper energy in a state where residents generally pay 50% more than the national average for electricity because of the utilities’ heavy reliance on high-priced nuclear and alternative energy.

California utilities are not standing by idly. They are trying tenaciously to hang on to their customers--while slugging it out with Wayne and other newcomers for business outside their traditional service areas. Each utility has formed a power marketing subsidiary to do just that.

Many companies, including Wayne’s, have formed alliances. His Eastern Pacific Energy, largely a sales and service operation, is partnering with an affiliate of Washington Water Power, one of the lowest-cost generators in the nation. The WWP affiliate will ship hydroelectric power to Wayne’s California customers from the Northwest via the interstate power grid.

The low cost of that hydropower and a five-year commitment from WWP to supply him with 300 megawatts of power--enough to light 300,000 homes--gives Wayne a good chance of beating the price of energy that will be sold over California’s soon-to-be-created Power Exchange. That’s the pool for energy generated by PG&E;, Edison and SDG&E; whose benchmark will be set largely by more costly fossil fuels.

The first brass ring went to Arizona Public Service, which claims to have made the first retail delivery of electricity in California, supplying aerospace manufacturer Aerojet of Rancho Cordova with 20% of its power starting July 29. That delivery was possible because Sacramento Municipal Utility District decided to give some of its customers “direct access” or free choice on July 1, six months in advance of the three investor-owned utilities.

(Last summer’s law covered only investor-owned utilities, leaving it up to the state’s municipal utilities to decide when and if to open up their customers to outside power suppliers. Los Angeles Department of Water and Power says its 1.3 million customers will not be able to choose providers on Jan. 1, but will be able to at some unspecified date.)

Wayne is doing more than selling: He is helping invent the power market as he goes. While Wayne pitched Lubin, his associate Betsy Gibson was in San Francisco talking up state regulators and other power marketers, trying to hash out a myriad of details, from computer language to billing cycles that will determine how the power market will be implemented.

Those power market mechanics are so important that Wayne, Gibson and other members of his staff now spend 25% of their time in San Francisco, lobbying the state Public Utilities Commission and duking it out with the utilities, each side striving for advantage in a market set to open in less than five months.

For example Wayne’s company and other power marketers are fighting a utility proposal to charge consumers up to $15 to switch over to outside providers. They also oppose the utilities’ proposal to limit the number of accounts they will switch over to outside power peddlers to a combined 28,000 per month statewide.

The power marketers oppose the limits and fees because they believe they will discourage people from switching from the utilities. They argue that transfers can be made electronically and should not incur a charge. With 12 million metered accounts in the state, the limit on transfers could cause long delays and customer frustration.

“At that rate, it will take 10 years to get all the customers switched. Why spend any money advertising? It’s like sending an invitation to the party and no one can get through the door,” said Lou Pai, chief executive of Enron Energy Services.

“We need to make sure residential customers don’t get stuck in a queue for months on end . . . given our expectations for customer excitement about electricity choice,” said Julie Blunden, the San Francisco-based regional director for Green Mountain Energy Resources.

Homeowners, by and large, have not yet felt the marketing push, but big businesses statewide have been hearing sales pitches such as Wayne’s for months. That’s because most power marketers would prefer to grab the high volume accounts of industry and big business. And because selling residential customers will be more time-consuming and less profitable.

Other companies say they are staying away from the homeowner market because they can’t convert them with a flip of a switch as is done with long distance telephone accounts. Wayne and other power marketers need signed contracts from new customers.

“We’re watching how the homeowner market will develop. It’s not really our focus right now,” Southern Co. spokesman Chuck Griffin said.

Wayne said selling power to individual homeowners makes the most sense when residents can somehow be approached in groups, such as apartment residents and mobile home park dwellers.

Lubin and Lewis Homes were attractive prospects to Wayne in part because he hoped Lubin would give him permission to market energy to tenants of 2,000 apartment units that Lewis Homes owns, including putting up his displays in the apartment lobbies or enclosing his mailings in rent notices.

Pitch Complicated by Uncertainties

Just explaining the power market to prospects, even sophisticated customers such as Lubin, is a complicated job, one that Wayne hopes will be simplified next month when utilities begin an $87-million education program--paid for by ratepayers--to explain the choices.

In fact, much of Wayne’s presentation to Lubin was a primer in Deregulation 101. He explained that the choices that Lubin and other Californians make on their power supplier will affect only about one-quarter of their bills--the raw cost of power generation.

He reminded Lubin that even if he decided to buy power from Wayne’s company, he would continue to be billed by Edison, which will simply pay Eastern Pacific Energy its generation portion, just as Pacific Bell pays long distance telephone companies out of what it collects.

The generation portion of a typical monthly electric bill represents only about 25% of the total. The rest of Lewis Homes’ payment would go to pay Edison’s fixed costs, such as power delivery, customer service and debts related to nuclear and alternative energy.

Wayne told Lubin how the free power market will operate, how new state agencies will regulate pooling and delivery of energy, and so on.

But Lubin still had a difficult time grasping the market and asked a succession of questions: “How will I know I’m getting the lowest price? Whom do I call if there’s a problem? How much will I save and how do I know I’m getting the lowest price for energy?”

He added: “If this is going to be guesswork, I’m not interested. In order to make a decision I need facts in front of me.” Lubin complained that other companies had not been able to quote him specific prices.

Wayne told Lubin he could not guarantee him a specific price, that no one could because energy prices fluctuate and the statewide Power Exchange, the commodity pool that will set the benchmark price that marketers will compete against, has not been set up yet.

But Wayne promised Lubin something he liked: a formula by which Lewis Homes would receive 70% of all energy savings from what Edison charged him, with Wayne’s Eastern Pacific Energy receiving 30%. The worst case for Lubin would be to pay the same price for energy he now pays to Edison, which Wayne promised to match.

“If we don’t save you money, we don’t make any money,” Wayne told Lubin, who responded that Wayne’s deal was “the most concrete proposal we’ve received.”

Stepping out of Lubin’s office and into the sweltering Upland afternoon, Wayne exuded confidence that he was close to a sale. He had led Lubin through a minefield of murky market issues and pesky competitors and nudged him toward a deal.

“It’s nice being the smartest guy at the table. I always feel that way after a presentation,” Wayne said.

On Monday, five days after Wayne’s presentation, Lubin agreed to a five-year contract.