Making Sense Out Of Energy Deregulation

What small businesses need to know to cut back costs and boost their bottom lines

In the last four years, business owner Abby M. Locke has seen her electricity costs triple. To avoid cash flow problems, the 39-year-old founder of Premier Writing Solutions in Washington, D.C., elected to sign up for her electricity provider’s budget payment plan. “The budget plan has provided some temporary relief,” she says. “At the end of the year I’ve had to pay an adjustment, but it helps during the year to be able to put some of that money to other uses.”

According to the National Federation of Independent Business, 10% of small-business owners say energy costs are their largest expense and 43% say they have attempted to reduce their energy consumption. The focus on energy costs is particularly strong now that several states have deregulated their utilities, giving business owners a choice of providers. While the move to deregulation was designed to increase competition and lower electric costs, results have been mixed, leading many industry experts to advise small-business owners to become more energy efficient to realize cost savings.

“Most small businesses have supported electric deregulation as a means of bringing competition into the marketplace,” says Kevin Shivers, Pennsylvania state director for National Federation of Independent Business. Larry D. Ivory, president of the Illinois State Black Chamber of Commerce, explains: “If we have 100% or 200% increases in energy costs, then obviously that cripples business growth and development at the same time.”

But a growing number of business owners are asking why prices aren’t dropping as advocates of deregulation promised. Deregulation is not the cause of rising energy costs, says Thomas H. Graham, president of Pepco Region, a subsidiary of Pepco Holdings, Inc., which provides electricity in Maryland and Washington, D.C. Rather, “the rising cost of fuel as a result of damage created by hurricanes Rita and Katrina in the Gulf Coast and the global increase in demand for fuels needed to create energy are the primary reasons,” he says.

Currently 18 states, along with the District of Columbia, have deregulated or are in the process of deregulating. Six states have suspended, delayed, or repealed the deregulation process. The rest of the country is waiting to see if increased competition and lower costs do, in fact, pan out for the early adapters.

Muddying the waters even more, the states that have deregulated have shown varying degrees of success when it comes to promoting competition, according to electricity provider Liberty Power. Liberty Power, which is minority-owned, recently ranked deregulated states on how easy it was for small-business owners to find the best electric rates. “What you’re seeing is some states are doing it in a way that’s very successful; other states are not,” says Nelson Reyneri, vice president for government affairs and corporate communications. For example, New York and Texas scored high marks for programs instituted to help business owners compare prices of competing utilities. On the flip side, Nevada scored poorly because the state offers electric choice only to businesses of a certain size, leaving the smallest businesses without the same opportunities. To

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