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KANSAS CITY, KS — There are many communities across the United States where a spirit of cooperation exists between hvacr contractors and the local utility companies. In the best of cases, these are relationships built on solid business foundations — contractors with reputations for quality service and installation departments, coupled with the deep pockets and energy resources of utility companies.
The News has followed the stories of contractors, both commercial and residential, who have benefited from a partnership with local gas or electric energy providers.
Commercial, industrial, and institutional contractors cite many examples of design-build projects, such as the one in Orlando, FL, between the Orlando Utility Commission (OUC) and mechanical contractor S.I. Gold-man Co., Inc./Comfort Systems USA, which was profiled in last week’s issue.
But there linger accusations involving utilities using ratepayer money to fund big-budget marketing, advertising, and/or operational costs of their “unregulated” hvacr service branches. One of the contractors profiled in this article attempted to partner with a utility company that had started a non-regulated entity to compete with local contractors. But the utility shut down the program amid accusations of wrongdoing.
However, such negative interactions appear to be counterbalanced by the positive experiences of residential contractors who are profiting from being “preferred” or “referred” service providers — thanks to the efforts of utility companies.
Contractors are also reaping the benefits of the marketing reach of utility companies, explained Tony Ponticelli, executive director of the National Alliance for Fair Competition.
“It is a rare contractor who spends much time on marketing,” he said. “In the traditional setting, customers for contracting services may solicit bids or may directly approach a contractor with which it has dealt with in the past, placing the contractor in what is essentially a passive role.
“Utilities are constantly calling on customers to push their services. Their marketing representatives will not arrive without some, or even considerable information about the customer’s facilities and sites. The utility will know the customer and be prepared to provide an attractive package of energy services, including financing arrangements for equipment upgrades or new installations.”
With a crowded field of financial institutions ready to offer special packages and rates, some utility-contractor relationships have ebbed and flowed. As competition has moved into the financing arena, some utilities have stepped up efforts to partner with contractors while others have scaled back their programs, citing the inability to exhaust resources in programs that “bear little fruit.”
Yet, despite the changes, new relationships have been forged out of utility-contractor consumer programs, relationships built on mutual trust and admiration. The examples in this story reveal how contractors and one local utility joined forces and eventually settled into mutually beneficial relationships.
The Residential Service MarketThe News looked at Kansas City, KS, a community where residential hvacr contractors have worked in concert with the local utility company, to see how changing economic times have had an impact on cooperative programs.
Three hvacr contractors in the Kansas City area were asked about their relationships with Kansas City Power & Light (KCPL). All three have been involved in some of the utility company’s programs over the past several years, and the results have varied.
Ken Watkins of Midwest Heating & Air Conditioning said his company’s position is simple when it comes to utilities. “Our philosophy is, if you can’t beat ’em, join ’em,” he said.
Midwest is a force to be reckoned with in the competitive Kansas City market. The company is 41 years old and the 10th largest Lennox dealer in the U.S.
The company, owned and operated by three Lambert brothers, Jack, John, and Jeff, employs 70 people and did $8 million in sales last year. With approximately 25% of the company’s business in service and replacement and the other 75% in new construction, Midwest had a keen interest in one particular KCPL program.
The contractor’s relationship with KCPL began with the utility’s heat pump program several years ago. In the program, KCPL gave incentives to builders to sell heat pumps and encourage participating contractors to install and service heat pump systems.
“KCPL gave us rebates of $50 per ton for residential installation,” added Watkins. “One year Midwest sold 80 heat pumps, and eight of our employees won vacation trips for selling 10 systems each.”
But things changed over time, and the steady flow of customers from KCPL dwindled.
“KCPL began breaking into different divisions and things have changed quite a bit,” Watkins said. “They used to handle financing on all of their systems, but they eventually turned their financing program over to someone else.
“KCPL has been great to work with. But we miss the glory days. It used to be that everyone got heat pumps — it was almost automatic because KCPL was involved with the program.
“The volume of business with them has gone down to a trickle. We used to get a lot of leads but now that is very rare.”
Randy Moore has been running Moore’s Home Mechanical Services, Inc., for several years, taking over from his father, who founded the company 56 years ago. He plans on making it a third-generation business by eventually turning over operations to his son Jason.
The company has 13 employees and does 95% residential replacement work. Moore’s business has enjoyed a 35% annual growth rate from its inconspicuous location in an older industrial section of downtown Kansas City.
Like Midwest, Moore’s business has seen its role with KCPL wax and wane. Moore was involved in the heat pump program and in the “Worry Free” program, administered by Worry Free Service, Inc., a separate, non-regulated subsidiary of KCPL.
The lasting relationship got its start through Moore’s close ties with the Air Conditioning Contractors of America (ACCA). Worry Free has worked jointly with ACCA on presentations about utility-contractor partnering, and four Worry Free employees are associate members of ACCA.
“We were in the top five contractors during the first three years of Worry Free,” he said. “But we haven’t done much with that program in the last two years, except to get financing for our customers.
“We call KCPL and they arrange financing.”
Moore was happy with the heat pump program, too, because KCPL encouraged homeowners to replace existing air conditioning systems with heat pumps. Moore said his company sold and installed heat pumps, being part of the KCPL contractor referral network. Customers were also given rate breaks if they used heat pumps.
But Moore has seen a changing atmosphere at KCPL, which he said is not uncharacteristic of utility companies.
“Utility companies have a tendency to buy and sell programs — to get everyone involved,” he said. “And they can also stop a program as fast as they start it.”
James Gallet runs EnviroTech Heating & Cooling, a small service and replacement business in Shawnee, just outside of Kansas City. His six to eight employees do 80% of their work on residential systems and also service small appliances and ice machines.
“There are a lot of affluent doctors and lawyers in our area with wet bars in their homes, equipped with small ice-making machines,” said Gallet.
Gallet said he would like to expand his service business although he doesn’t want to grow “too big.”
“I don’t want to have 20 trucks on the road,” he said.
One way Gallet expanded his service business was by partnering with KCPL, which leased equipment to homeowners and signed them up for service agreements. Homeowners paid a monthly fee for installation and service of their new equipment.
“When the program started, we were the top contractor involved — and we aren’t that big,” said Gallet. He added that KCPL “got out of that portion of the business [leasing] but still has service agreements, which Enviro-Tech maintains.”
EnviroTech has also seen a dramatic drop-off in sales leads, but Gallet continues to utilize KCPL’s financing packages.
“We only get about a dozen sales leads from KCPL a year,” he added. “We prefer to be a part of their financing program.
“We don’t want to go back to the way it used to be because homeowners weren’t our customers, they were KCPL’s. And KCPL set their own prices for equipment.”
So while KCPL has scaled back some programs and dropped others, local hvacr contractors are still benefiting from a relationship with them, albeit a smaller one.
KCPL’s Doug Dahl said things have changed, but his company still values a good relationship with contractors.
“We are getting away from administering programs,” Dahl said. “We want to become an information source for customers. Our future direction is supporting contractors with information.”
Publication date: 08/06/2001