© 1998
Syracuse Online
© 1998
The Herald Company.
Used with permission.

By Tim Knauss

The company that crafted New York state's first major experiment in competitive electricity retailing has withdrawn from it, bruised and bloodied.

Wheeled Electric Power Co. of Uniondale, Long Island, which had about 1,000 electric customers in Niagara Mohawk Power Corp.'s service territory, recently pulled out of upstate New York after filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

WEPCO was one of a handful of energy marketers to actively recruit electric customers under a two-year pilot program open to farmers and food-processing companies. WEPCO wrote the original proposal for the program and pitched it to state regulators on behalf of Dairylea Cooperative as a way to work out the kinks in electric competition while also providing discounted power to farmers.

Participants in the pilot program, which runs through late 1999, save about 10 percent off normal utility prices.

On Nov. 13, WEPCO's local customers were notified that the company was getting out of the program and that they could transfer their electric service to Agway Energy Products, another retail supplier that offered similar price discounts. Most took that option, with a handful returning to Niagara Mohawk, said Michael Meath of Agway.

WEPCO also left behind some customers in the area served by New York State Electric & Gas Corp. Those customers have chosen other suppliers, NYSEG spokesman Clayton Ellis said.

John O'Brien, a Syracuse University graduate who founded WEPCO in 1993 and serves as its chief executive officer, said the bankruptcy stemmed from an unsuccessful stock offering in September, which the company had counted on to help pay its debts. When financing for the stock offering didn't materialize, WEPCO was unable to pay its wholesale power suppliers and other creditors. WEPCO filed for bankruptcy protection in October.

O'Brien said he is confident WEPCO will satisfy its creditors and emerge from the proceeding. "We are reorganizing - we aren't dead at all," he said.

In the meantime, however, the company will compete only in areas where retail energy marketers can clearly make a profit right now, and that does not include upstate New York, he said.

"We were running into financial difficulties, and it was difficult for us to handle markets where we were making absolutely nothing," O'Brien said.

But he added that he is optimistic about energy deregulation in New York, and expects the market to improve as competition evolves.

WEPCO will continue to serve customers in the downstate territory of Consolidated Edison and in parts of New Jersey, and it plans to enter the Pennsylvania and Massachusetts markets, O'Brien said. The company has stopped doing business in Illinois and New Hampshire.

WEPCO was founded to serve residential and small business customers. Rather than get involved in wholesale trading, as many of its peers have done, the company focused on garnering a share of the retail market by participating in pilot programs and other markets as they opened.

But electricity markets have opened more slowly than WEPCO had anticipated.

In general, energy retailers have been limited in their ability to make a profit during the early stages of competition, said Craig Goodman, president of the National Energy Marketers Association. During the transition stage from utility monopolies to a free market, retail electric suppliers can compete for only a limited portion of each customer's electric service and often can sell to only a fraction of a utility's customers, Goodman said.

Circumstances vary widely from state to state, Goodman said.

In the New York state farm and food processor pilot program, about 17,500 customers were eligible to shop for a new electric supplier in the service territories of NiMo, NYSEG, Rochester Gas & Electric and Central Hudson.

Participation was strongest in the NiMo region, where WEPCO garnered nearly one-quarter of the 4,300 customers who switched from the utility. Other leading marketers included Agway, New Energy Ventures and Advantage Energy, NiMo officials said.

Many of the marketers selling power in the program have said they aren't making a profit, but are participating to learn how to work with utilities and to develop a reputation that will help down the road.

By the end of 1999, all Niagara Mohawk customers will be free to shop for electricity.

Wednesday, December 2, 1998