Consumers’ options will initially be limited

David Strow

Saturday, Oct. 7, 2000 | 3:05 a.m.

Residential customers aren't likely to initially benefit much from electric deregulation in Nevada, as power companies will first go after the lucrative business of serving big casino resorts and industrial plants.

But deregulation proponents are hopeful that eventually competition will come to Nevada neighborhoods -- giving homeowners and apartment dwellers the same economies of scale enjoyed by big business users.

Residents, not casinos, now represent the largest block of power users in Southern Nevada. In 1999, Nevada Power sold $416 million in electricity to its residential customers, about 46 percent of total sales.

By comparison industrial customers, which include large casinos, accounted for $290 million in sales, or 32 percent. All other businesses accounted for $200 million in sales, or 22 percent.

But there's a key difference between a neighborhood and a casino for an electric company. The $416 million in residential electricity sales is spread out among hundreds of thousands of customers, each needing individual customer service, billing and metering. Their electric consumption can vary widely by both time and season.

That isn't the case with casinos. Overhead costs were dramatically lower for Nevada Power to provide that $290 million in power to a relatively small number of casinos and industrial businesses.

That's why many of the new-generation electricity companies have made the choice to stick with large commercial and industrial customers.

Which begs the question: Will residential customers be the group no electricity provider wants to serve?

That certainly seems to be the implication at this point. To date, just one established power generator -- NewEnergy Southwest, a subsidiary of electric generating giant AES Corp. of Arlington, Va., -- has received a license to supply power to Nevada residential customers.

Idaho Power Co., the dominant utility in Boise, is also interested in serving residential customers in Nevada. However, its application with the state is on hold while the company works on selling its utility business in Jackpot, Nev.

Meanwhile, the largest power generators licensed in Nevada -- Duke Energy Inc. and Enron Corp. -- are licensed only to serve business customers. A total of nine companies have been licensed or are applying to serve business customers in Nevada.

"More companies will want to serve larger customers, because they have a greater ability to make a profit," said Don Soderberg, chairman of the Nevada Public Utilities Commission. "My prediction is that penetration in residential markets will be slower."

But there's another reason residential competition may be slow in coming. Even if competitors are available, few residential customers have shown any appetite to switch from an incumbent utility. Consider the case of long-distance telephone service -- 15 years after competition began, former monopoly AT&T is still No. 1 in the long-distance market despite having hundreds of competitors including heavyweights WorldCom and Sprint.

"Customers want to be able to choose their provider, but that doesn't necessarily mean they're going to switch," said Jim Owen, spokesman for the Edison Electric Institute, a Washington, D.C., electric utility trade organization. "More than a majority of customers wouldn't switch. They just want to be able to choose."

So how can a residential customer get low rates? The solution for many may lie in a process called "aggregation." Think of it as a do-it-yourself electric cooperative.

In terms of power consumption, one home may not be able to match an MGM Grand or a Mandalay Bay, but all the homes in Summerlin, Spring Valley or Green Valley easily could. Under aggregation, a municipality or neighborhood could form a single unit, buy power at rates equal to large customers, then distribute the power to its residents.

A number of municipalities are considering this option. Soderberg said other aggregators could include trade organizations or labor unions, which would aggregate as a service to their members.

Naturally, for-profit companies hope to be aggregators as well. Both NewEnergy and Idaho Power plan to offer aggregation services to Nevada residents, and three small, start-up companies have applied to be residential aggregators as well. One is California company Utility.com Inc., which plans to use the Internet for customer service functions like billing to cut customer costs.

As the market develops, Soderberg believes the number of residential options will grow. That has happened in California, where 29 out of 32 electric providers are licensed to serve residents.

But suppose that no power provider wants to take you on, or you just might not trust deregulation. Under Nevada law, you have an insurance policy, called the "Provider of Last Resort."

The PLR -- in Las Vegas' case, Nevada Power -- cannot turn you down as a customer. While other companies will have the right to raise rates if electricity is growing expensive, the PLR will first have to prove its case to state regulators.

But there's a catch. Nevada Power is only obligated to act as the PLR through March 2003. And after tangling with Nevada regulators over its rates recently, Nevada Power says it wants to ditch the PLR job as soon as possible.

Who will be the PLR after March 2003? Nobody knows yet.

"That's one of the toughest questions to answer," said Nevada Power President Steve Rigazio. "It doesn't say we have to be the PLR. If other entities want to be the PLR, they can try to do so."

Still, there's interest in the job. Shell Energy Services, a subsidiary of Shell Oil Co., has expressed interest in becoming the PLR for Nevada residential customers.