It appears the honeymoon is over for energy deregulation.
While energy managers told SN they still expect significant savings on electricity in a deregulated environment, many have scaled back their expectations from as high as 40% to 60% to a more modest 5% to 15%.
Even these savings may not be realized until years after deregulation occurs in any particular state because of competitive transition charges, or CTCs.
CTCs are fees added to the net price of electricity in order to pay off the billions of dollars of utility companies' "stranded investments," which include a variety of costs including bond payments and decommissioning costs for power plants and employee retraining due to deregulation.
For example, California, which deregulated in March, won't see an end to CTCs until after the turn of the century. In addition, sources said they expect to face complex negotiations and reams of paperwork as states around the country deregulate.
Texas will examine the particulars of deregulation when the next state legislature convenes in January 1999. But even if deregulation comes to pass, supermarkets like H.E. Butt Grocery Co., San Antonio, would not expect to see savings until stranded investments were paid down over the course of three or four years, said Bob Manning, engineering team leader at H-E-B.
The Texas Public Utilities Commission estimated stranded investments by all utilities at $4.5 billion; the utilities themselves place this number at two to three times that amount. "That's a swing of $5 billion to $10 billion, depending on whom you ask," Manning said.
In Texas as in other states, the debate rages over who should foot that bill. "This is a huge concern to us," Manning said. "Will stockholders be asked to pay for bad past investments? They should.
"We are concerned over how our customers will be treated," he added. "We will not take part in deregulation that takes advantage of our residential customers to give preference to industrial or commercial customers."
Whether deregulation takes effect or not, H-E-B is already taking steps to simplify and rationalize its energy usage. The retailer has added a utility database administrator who reports to the energy manager. With a total of 240 stores, H-E-B gets "lots of utility bills every month," Manning said.
"This individual's goal is to retrieve, sort and filter information to help us better understand patterns of usage," he added.
King Soopers, Denver, already has some experience with deregulation of natural gas, since Colorado deregulated in the late 1980s.
"Our experience has been relatively good," said Leonard Micek, manager of engineering at King Soopers. "We renew our contracts every year. Some years we save well over 20%, other years just 10% to 20%. But you really have to know what you use so you can plan ahead. And you have to be smart enough to know which facilities it pays [to use gas] and which it doesn't."
"Electricity doesn't get cheaper just because someone is bidding for your business," said David Noller, president and chief executive officer of the Institute for Multisite Energy Consumers, Laguna Beach, Calif.
"Deregulation just means there is competition. The winners will be the informed participants, but this is not going to happen overnight," he added.
IMEC, a national not-for-profit trade association formed late last year, seeks to help educate multisite retailers, such as supermarkets, on how best to take advantage of buying electricity in a deregulated environment.
Retailers are seeing mixed results already from deregulation, with much depending on the geographic area they operate in. Albertson's, Boise, Idaho, saves 1% to 2% on electricity in California since deregulation began there, said spokeswoman Anne Alenskis. "In higher utility rate states, we may eventually see more savings," she said.
Food Lion, Salisbury, N.C., has already experienced some savings as a result of the deregulation of the gas industry, a pattern it hopes will continue with electricity. "But while we will have more energy choices, we anticipate more paperwork, multiple contracts and more complexity in negotiations," said Tawn Earnest, corporate communications coordinator.
Associated Food Stores, Salt Lake City, saw the need for a separate department to negotiate power blocks in the future, said Tom Ramsbottom, store planner. The grocery wholesaler's membership numbers 750 independents.
"This is a very complex issue," said Edward Estberg, director of facilities at Raley's Supermarkets & Drug Centers, West Sacramento, Calif. "If you don't understand it, you can get buffaloed by marketers making claims they cannot keep."
Raley's has just begun installing meters in the 42 stores serviced by Pacific Gas & Electric, San Francisco. These units will now be serviced by a local utility. "We don't expect any great savings," Estberg said. "We're just trying to get our feet wet."