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STRATEGY

Small Biz Gets No Charge from Electricity Deregulation

Here's why small businesses better pay attention when its electric-utility market becomes deregulated.
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Red Tape

Long plagued by some of the highest rates in the country, California is about to deregulate its electric-utility market. But small-business owners should take heed of the deregulation bill's fine print. "What you see is small business getting screwed," says Julie Scofield, executive director of the Smaller Business Association of New England.

Thanks to the lobbying efforts of California Large Energy Consumers Association (CLECA), a complicated agreement was hammered out by lawmakers and utility companies. The new legislation, which is expected to take effect on January 1, 1998, allows large customers to negotiate rates with electricity providers while other users get frozen rates and mandatory scheduled rate decreases.

Along with a handful of leaders at similar entrepreneurs' organizations, including the Cleveland-based Council of Smaller Enterprises (COSE), Scofield is exploring approaches to enable small energy consumers to aggregate their purchases. "It's a perfect model for us," says COSE's Rob Fowler, who likens the energy-buying plan to COSE's voluntary health-insurance group-purchasing alliance, which is now used by more than 12,000 companies. "We see energy deregulation as an opportunity for our organization," adds Barry Cargill, vice-president for government relations at the Small Business Association of Michigan. "When the time is right, we hope to have our program ready."

The clock is ticking. According to LEAP Letter, a newsletter that tracks energy-deregulation activities, at least 20 state legislatures initiated deregulatory proceedings in 1996. New Hampshire is experimenting with a pilot program that raffled off a limited number of custom-purchasing arrangements as part of a deregulation trial. Most existing electricity monopolies are expected to dissolve over the next five years or so as the contours of a new electricity-distribution system emerge.

"The quality of the power is also a big issue," Scofield notes, pointing out that cheap power is no bargain if a sudden surge fries your circuits. "Those kinds of things are not a given in the world of energy deregulation," she adds.

In nearly all these cases, says LEAP Letter publisher William Spratley, "smaller businesses are finding themselves at a real disadvantage" in the regulatory combine, sandwiched between the well-represented utilities and large power users and the consumer-advocacy groups that protect individual residential customers. As a result, even some of those working on creating new energy-purchasing cooperatives are not terribly sanguine about small business's prospects. Aggregating purchases might be an answer, agrees Scofield, "but I doubt it will be a perfect solution. I've rarely seen those cooperatives be as effective as fair prices."

Last updated: Dec 1, 1996




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