Contractors vs. Utilities - Round Two

October 16, 2003
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The ongoing struggle to ensure fair competition between HVACR contractors and public utility companies has continued to grab headlines around the United States.

In New York, contractors are up in arms about the relationship between KeySpan Energy's regulated gas distribution company and its unregulated home services company. In Michigan, contractors are questioning Consumers Energy about its unregulated home appliance repair program, which some allege is supported by the enormous marketing and human resource departments of the utility's regulated business side.

New York Contractors Voice Objections

The Greater New York Chapter of the Air Conditioning Contractors of America (ACCANY) has been arguing that KeySpan Home Energy Services, an unregulated subsidiary of the KeySpan Corp., has benefited from the marketing might of KeySpan Energy Delivery, the regulated subsidiary of KeySpan Corp.

"There is no transparency here," said Anthony Carbone of Systematic Control Heating & Air Conditioning, Great Neck, N.Y., an ACCANY member. "KeySpan ingratiates itself with lots of replacement work by creating a situation where the customer cannot tell one [subsidiary] from the other. For example, when customers call 1-800-KEYSPAN and say that they have a gas leak, they are actually speaking with the unregulated subsidiary."

Carbone is a strong supporter of the Feingold/Brownback amendment to the U.S. Senate Energy Bill. The amendment is described in the Congressional Record Summary as being designed "...to protect the public and investors from abusive affiliate, associate company and subsidiary company transactions."

In a letter to U.S. Senator Charles Schumer (D-N.Y.), Carbone wrote, "This Feingold/Brownback amendment, supported by the Air Conditioning Contractors of America, is substantive in stopping behemoth utilities from using their monetary power to unfairly eliminate independent contractors. By the use of their corporate logo and same name for service, the subsidiary corporation has stolen many longtime customers due to the confusion posed by this utility corporation. Never have I seen such a blatant misuse of power by a utility than that of the KeySpan Corporation."

Earlier this summer, the Feingold/Brownback amendment was tabled by a Senate vote of 50 to 48.

According to Carbone, utility customers are confused by mixed messages sent via monthly billing statements. "KeySpan obtains service agreements by default," he stated. "Many homeowners see paperwork in the mail, and they figure that since they need service from someone, they might as well take it from the utility. HVACR contractors don't have that same luxury."

Carbone recently published an article in the ACCANY newsletter, in which he stated, "The Public Service Commission has mandated that they [KeySpan] no longer provide 'free service' to gas heat customers because this fee was actually being built into all ratepayers' bills. But it was revealed that only once in 13 years were homeowners actually accessing this free service.

"So lo and behold, they created a subsidiary called KeySpan Home Energy Services. This subsidiary was designed to charge for services that were once called 'free.' They are competing with individual contractors to repair heating and air conditioning equipment. This corporation, KeySpan Home Energy Services, hides behind the name and logo of the utility KeySpan Energy Delivery.

"The veil of the utility provides this independent subsidiary with default customers because they are fooled into believing that they are dealing with the utility. This is an unfair practice against independent contractors that have been providing reliable installations and service for years."

Former ACCA National Chairman Bob Keingstein, owner of Boss Facility Services, Smithtown, N.Y., said that contractors have been fighting against unfair competition for a long time. "ACCA has an alliance that was assembled just to fight this," he commented. "This has been going on for years."

Carbone also objected to KeySpan's use of a function at its Web site, which he said was confusing. At issue was the button labeled "Installation, Repairs & Service Plans" on the secondary navigational bar in the "Products & Services for Home" section of the KeySpan Web site.

In a written reply to this concern, Kevin Cortright, KeySpan's director of customer relationship marketing, stated, "The team responsible for the site determined that although the 'Installation, Repairs & Service Plans' [button] was designed to provide site visitors with an easy path through the Web site, and was not intended to serve a promotional purpose." Cortright indicated that the navigational button would be removed.

Carbone said that consumer support for the Home Energy Services program has been unprecedented, despite the fact that the subsidiary has lost $19 million. "I don't know of any other company that can loose this much money and shareholders say, 'Let it run,'" he said. "Until shareholders at KeySpan or the PSC steps in to stop this practice, KeySpan will continue to fool its customers."

The News contacted KeySpan for comment, but the company had not responded by press time.

Meeting in Canton, Mich., to rally support against Senate Bill 612 are (from left) Fritz Benson, lobbyist for the MAFC; Phyllis Patterson; Senator Bruce Patterson; and Dan Squires, contractor and member of MAFC.

Bending Politicians' Ears

The Michigan Alliance for Fair Competition (MAFC) has been at odds with Consumers Energy over the utility's home appliance service plan (ASP) (see The News, March 24, 2003, "To Fight Fair or Not: It's Up to This Utility"). The MAFC has claimed that Consumers has been using ratepayers funds to support the ASP, thus engaging is cross-subsidization.

The Michigan Public Service Commission (MPSC) developed a code of conduct to ensure that Michigan public utilities are unable to subsidize unregulated services with ratepayer dollars. Consumers has objected to the code of conduct, and the utility is currently challenging it in the Court of Appeals.

Meanwhile, Consumers has approached Sen. Bruce Patterson, who is chairman of the Michigan Senate Technology and Energy Committee, urging him to hold hearings on the code of conduct with the goal of establishing a bill to allow Consumers to operate the ASP outside of the code.

Patterson, a supporter of the code of conduct, refused to open up hearings on the code. Consumers then approached the vice chairman of the Technology and Energy Committee, Sen. Laura Toy, who agreed to sponsor Senate Bill 612, which contains an exemption to the code of conduct for Consumers' ASP. Toy agreed to open up hearings on SB 612. The eight-member committee is facing a vote on whether to send SB 612 to the Senate floor for voting.

In an effort to stir up grassroots support to defeat SB 612, the MAFC held a meeting with Sen. Patterson on Oct. 9 in Canton, Mich. Over 30 contractors representing many groups and trades showed up to voice their support.

Patterson told The News that he does not want SB 612 to be voted out of the committee and onto the Senate floor.

"I think the MPSC has made the right decision about the code," Patterson said. "It is now before the Court of Appeals, and I think we should wait for its decision before voting on 612. I am philosophically opposed to 612."

Patterson said that it takes five votes from the eight-member committee to send SB 612 to the Senate floor. He knows the committee has four votes right now. The committee can continue to hear testimony or there could be a call for a vote soon. This may impact the Dec. 31 deadline when the code of conduct is scheduled to go into effect.

He added that the issue does not run along party lines, since Toy is a fellow Republican. "Toy has the three Democrats on her side to vote 612 out of committee. I don't have a problem with Senator Toy. I believe that she believes what she is doing is the right thing."

Fritz Benson, lobbyist for the MAFC, believes that SB 612 will go to the Senate floor and urged contractors to start talking to their local legislators about the controversial bill. "Tell your legislators that we don't want to do away with the [Consumers] ASP - only to run it like a legitimate business, without cross-subsidization," said Benson.

Cliff McCourt, owner of Day and Night Heating & Cooling, Novi, Mich., and a member of MAFC, testified at the SB 612 hearings. "The average contractor cannot begin to compete [with a utility affiliate]," he said. "Utilities share vehicles, computers, phone systems, phone numbers, office space, etc."

Dan Squires, owner of Vincent's Heating & Plumbing, Port Huron, Mich., and a member of MAFC, also testified before Patterson's committee. "It has taken years of struggle and sacrifice to get to the point with the code of conduct where we will have a level playing field, and in a space of a few months SB 612 could snatch it from us over claims that ring false when closely examined," he said. "SB 612 is completely self-serving, interferes with action currently in the Court of Appeals, and is a step backward toward the national trend of more corporate accountability, not less."

Jeff Holyfield, Consumers Energy's director of news and information, provided a statement that outlined the company's position.

In the statement, Carl English, president and CEO of Consumers Energy's gas division, stated, "Consumers Energy supports SB 612 because it will allow 175,000 households to keep the ASP that they've already selected. The plan is an optional program for residential customers and there's no charge to customers for service calls, or parts and labor for covered repairs. ASP pays for itself with no subsidy from the utility and provisions in SB 612 will continue to ensure that natural gas ratepayers don't subsidize the program.

"Independent contractors play a key role in the program. Last year, about 150 independent contractors handled nearly half of the 128,000 repair calls and 8,000 tune-ups done under ASP. Those contractors realized $6.9 million in revenue through ASP. The excellent work done by the independent contractors and Consumers Energy employees is reflected in surveys that show a customer satisfaction level of about 95 percent.

"We're proud of the business relationship we have with these independent contractors and very pleased with the customer satisfaction levels they have helped us reach in a very competitive marketplace. U.S. Census figures show there were 2,275 independent plumbing, heating, and air conditioning contractors in Michigan in 1987, the year before Consumers Energy got into the service contract business and that number had grown by 45 percent, to 3,307, by 2000. In fact, the Appliance Service Plan program is less than 1 percent of Michigan's total HVAC market.

"SB 612 will allow Consumers Energy and about 150 independent contractors to continue to serve the 175,000 customers - less than 7 percent of Consumers Energy's customers - who have selected the program and benefit from it."

Publication date: 10/20/2003

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