Striving for Synergy

July 24, 2001
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James Gallet of EnviroTech Heating & Cooling is a member of the "Worry Free" network of contractors in Kansas City, KS.
[Editor’s note: This is the first of a three-part series on the changing relationships between utility companies and residential and commercial hvacr contractors.]

It used to be that certain words struck fear in the hearts of some hvacr contractors — words like consolidators and utilities. After all, these organizations represent formidable competition for the traditional, independent contractors. There was reason to believe that competition from these entities could erode an existing customer base and create ill will.

Despite an atmosphere that could produce wholesale panic and animosity, some contractors have found ways to work with their local utility companies in an array of service/maintenance agreement programs, new installations, new construction, and referral programs.

Yet there still lurks some doubts about the intentions of utility companies and their independent, unregulated subsidiaries. Contractors are still asking if utility companies are funding their independent subsidiaries with ratepayer revenues, otherwise known as cross-subsidization. While the effects of deregulation may have limited impact on contractors, utility companies have had to make some adjustments to their business plans.

The traditional role of utility companies has changed from energy provider to “bundled” energy services provider, opening the door for increased competition from start-up energy sellers and resellers, energy management companies, and contractors, to name a few.

Tony Ponticelli, executive director of the National Alliance for Fair Competition, citing the number of states that have passed statutes deregulating the utility industry, said it best: “For those utilities which have sought to recoup diminished profits resulting from the loss of their monopoly franchises in power provision through diversification into electrical and mechanical contracting services, the results are definitely mixed, at best.

“Some appear to be succeeding in capturing market share while others have entered — and exited — the market. Contractors can expect continued utility targeting of customers for electrical and mechanical contracting services, especially those in the large commercial, institutional, and industrial markets.”

But “targeting” doesn’t necessarily equate to “competing.” In fact, utilities are finding that by working in concert with local hvacr contractors, they are able to stem the tide of customers who exited to seek better deals with other energy service providers. Many businesses are finding the spoils of the victory go to the companies that offer the best value to their customers, not necessarily the largest array of bundled services.



The Orlando Utilities Commission works hand-in-hand with local commercial contractors on several new construction and retrofit projects in the Orlando, FL area.

WORKING TOGETHER

A mutually beneficial relationship between utilities and contractors has positive results, at least according to one utility company executive. “It all comes down to two words: customer satisfaction,” said Bill Laub of Southwest Gas Corporation, Las Vegas, NV.

“About 15 years ago, a series of our quarterly customer satisfaction surveys displayed an alarming drop in customer satisfaction in our handling of the hvac product group. To reverse that trend, we began collaborating with the hvac industry. Among other things, our customer referral program was born. These results returned our quarterly satisfaction survey for hvac services back into the high 90th percentile during most of the 1990s.”

A number of utilities have enjoyed long and successful relationships with hvacr contractors. They have seen the value of supplying energy and financing programs to customers who, in turn, have professionally installed and maintained hvacr equipment. Both entities provide the strength of their core businesses, resulting in strong ties and strong customer satisfaction.

Kansas City Power & Light (KCPL) started up its “Worry Free” program in 1996, ending what one spokesperson called an “adversarial relationship” between Kansas City contractors and local utility, Utilicorp. Under the Worry Free program, customers pay a monthly fee, which establishes funds to repair or replace hvac equipment.

“KCPL felt that by working with contractors, we could have the whole community working with us,” said KCPL’s Doug Dahl. “And we don’t like the idea of utilities using ratepayer money because it hurts our reputation.”

Dahl added that the Worry Free program is a separate non-regulated subsidiary of KCPL, and keeps an entirely separate “set of books.” He even reinforced that by stating that he recently sent some staff to KCPL for training and KCPL billed Worry Free for the training program. (The Worry Free program will be detailed later in this series.)

The Orlando Utilities Com-mission (OUC) in Orlando, FL, works closely with a local contractor — but not in the residential market. S.I. Goldman Co., Inc., a Comfort Systems USA mechanical contractor in nearby Longwood, FL, collaborated with OUC in the design-build and construction phases of a large chilled-water plant in downtown Orlando.

OUC’s Keith Rice said the increase in revenues from chilled- water services and the planned construction of a new city hall necessitated the need for a new chiller plant across the street. Having worked with S.I. Goldman in the past, Rice was confident that the chiller plant project would be in good hands.

“We had such good luck with Goldman,” said Rice. “They came in and did the design-build; and the plant was up and running in four months — our ‘100-day project.’”

From residential service agreement plans to multimillion-dollar new construction projects, many residential and commercial contractors are reaping the benefits of a “friendly” relationship with local utilities. Yet some adversarial relationships between the two parties do exist.

THE DARK SIDE

Ponticelli calls it the “dark side” — the problems that have risen out of utilities jumping into the bundled services market. Some utilities that have taken the leap with unregulated subsidiaries have drawn ire and suspicion from hvacr contractors.

“Despite the size and financial resources of investor-owned utilities, the utilities themselves are not always in the best position to exploit the very changes they have wrought,” Ponticelli said. “Effective management of an unregulated business demands far different skills than those required for management of a regulated industry.”

Lynn Briggs, executive director of the Michigan chapter of the Air Conditioning Contractors of America (ACCA), said that a new “Code of Conduct” passed by the Michigan Public Service Corporation opens up a lot of questions that have arisen from the “unregulated” side of utility companies.

Briggs raised the following questions to help determine if cross-subsidization exists:

  • Does your utility do joint marketing between regulated and non-regulated activities? How about utility bill stuffers? How about signs on utility trucks promoting non-regulated ventures?
  • Are utility employees used to perform non-regulated work?
  • Are utility trucks used for non-regulated work?
  • Is advertising paid by the utility to promote non-regulated ventures?
  • Does your non-regulated hvacr business use the name of the utility? How about a disclaimer that “this is not the company regulated by the Public Service Commission”?
  • Do you recognize any monopoly utility advantages that are used in your non-regulated activities?
  • Will a strong “Code of Con-duct” help level the playing field between utilities and others in the hvacr business?
  • The answers to these questions can determine what kind of relationship exists between utilities and contractors. So far, with a few notable exceptions, contractors and utilities appear to be working together well.

    NEXT WEEK: The News will look at the relationship between utilities and contractors through the eyes of the utilities

    Publication date: 07/23/2001

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