Positive Energy

Deregulation in the utility industrycould spell opportunity for entrepreneurs

When entrepreneur Ronald E. Russell served as a commissioner for the Michigan Public Service Commission from 1988 to 1995, he saw the future and it looked profitable. At the time, Michigan was preparing to introduce competition in the electric power industry, and Russell envisioned a third-party entity between customer and provider–much like his one-year-old Russell Energy Services Company.
Since then, a handful of states have pulled the plug on local electric company monopolies, and most others are in some state of industry restructuring–from holding hearings to issuing final regulatory rules.
Expect a debate over deregulating the industry as the 105th Congress gets rolling. Last year, legislation was introduced, although not passed, that directed states to open their markets by a certain date, and also allowed them to determine how it would be done. It’s expected the legislation will be revisited in several states during this session of Congress.

“This year, education will dominate the process,” says Rep. Al Wynn (D- Maryland), who sits on the House Commerce Committee that oversees the industry. Like other members, Wynn wants to know more about the subject and how it will affect his constituents before casting his vote.

In the meantime, states like New Jersey are wired up over competition for both gas and electricity. According to Herb Tate, president of the Board of Public Utilities in New Jersey (which restructured its gas industry in 1994), out-of-state gas suppliers are offering significant savings to local entrepreneurs. This is especially true for businesses that aggregate or band together to buy energy. “One association signed up about 4,000 businesses in 11 states to buy gas from a marketer and got a tremendous savings in their volume-purchase price,” says Tate, citing one business that saved more than $12,000 in the first six months. “That’s a strategy we think small businesses need to employ.”

California is another state that anticipates savings for business when electric power competition begins there next year. Competition will yield a 10% rate reduction beginning on January 1, 1998. This is expected to grow to 20% by 2002, says Anthony Harris, vice president for business customer service at Pacific Gas and Electric Co. in San Francisco.

But more importantly for interested entrepreneurs, the deregulation will provide ample opportunities to make money. “Anytime an industry this large goes through a change this significant,” says Harris, “it spells nothing but opportunity. From buying the power plants that utilities are spinning off, all the way down to consulting and aggregating small business customers.”

“When the numbers get this large, we get real short,” says Russell, noting the small number of minority energy suppliers. But as he establishes relationships with large companies, such as Texaco and Michigan Consolidated Gas, he has also observed an effort to include more minorities. “Partnering with larger companies is one way to get started,” adds Russell, who anticipates first-year revenues of $300,000- $500,000 and in five years hopes to supply energy to the Big Three auto industry. “So far, things are turning out just as I envisioned them.”

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