MI Contractors Talk About Utility Cross-Subsidization

September 20, 2001
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LANSING, MI — Recently, there have been more collaborative business ventures between hvacr contractors and utility companies, as reported by The News in our series on contractors and utilities. However, many contractors still suspect the activities of utilities that they view as unfair competition — especially when the utilities seem to be cross-subsidizing their hvacr entities (using ratepayer funds and utility resources to support non-regulated utility service companies).

The News recently sat down with two vocal advocates of fair competition between utility companies and hvacr contractors. Lynn Briggs, executive director of the Michigan Chapter of ACCA (MIACCA) and Pete Reckinger, owner of Reckinger’s Heating and Cooling, Dearborn, MI, were founding members of the Michigan Alliance Against Unfair Utility Practices almost 20 years ago. They, along with fellow contractor Cliff McCourt, have spent a lot of time and effort tracking Consumers Power and Michigan Consolidated Gas, utility companies that provided natural gas to millions of homeowners and businesses throughout southeast Michigan.

The contractors are still wary of utility activities, and want other contractors to be watchful, too.

(For another view on contractor-utility relations, see the letter from Chris Colditz, president of the Northern Illinois Chapter of ACCA, on page 4.)



Lyn Briggs (left) and Peter Reckinger are tough proponents of fair competition with Michigan utility companies.

The History

The group formed in response to a promotion that MichCon began in the downriver communities of Detroit, touting its $49 annual furnace inspection program.

“None of the contractors could compete with this price because the utility company was cross-subsidizing this service program,” said Briggs. “They were using ratepayer funds to basically give themselves free advertising for the program.”

In addition, Briggs said that utility company employees were running service calls while working for the utility and while using utility company vehicles. “A utility company could radio their technician to make a service call [under the special plan] and the technician could leave a job he was working on, make the service call, and head back to his regular work,” said Briggs. “The utility was providing him with the truck, tools, and equipment while he was working on the [non-regulated service] side of the business.”



The Options

Briggs said his group had some options to stop the unfair use of ratepayer money:

  • Fight the utilities in front of the Public Service Commission (PSC);
  • Fight them in the Michigan legislature; or
  • Fight them in the court of law.
  • “We weighed all of the options and decided to file a lawsuit to stop unfair practices,” Briggs said. “Cliff McCourt agreed to be the contractor in the lawsuit and we filed the suit in the Ingham County Court against Consumers Power,” now Consumers Energy.

    The alliance sued on two key issues: consumer protection violations and anticompetitive violations.

    The lengthy trial included an audit of Consumers’ books by the alliance and testimony from dozens of witnesses on both sides.

    After a year, the judge gave the alliance the consumer protection “win,” but said that the alliance had not proved the anticompetitive argument, saying that Consumers only had a small portion of the overall service market anyway. Consumers was ordered to pay the alliance’s attorney fees if both sides agreed not to appeal. Briggs said that not appealing may have been a mistake, but the alliance did not have the money to fight an appeal.

    “The utility’s legal department was paid for with ratepayer funds,” added Briggs. “So they had unlimited money to fight us. And if they needed more money to fight us, they could go to the PSC and ask for a rate hike.”

    Round two in the fight came when individual states were asked to adopt and implement federal guidelines for monitoring and regulating unfair utility competition.

    Briggs said his group presented evidence of cross-subsidization but the Michigan PSC said it saw no unfair practices and opted to leave out federal guidelines.

    Briggs said things quieted down a bit after that, despite efforts by contractors to encourage legislators to introduce anticross-subsidization bills.

    When electric utility deregulation was passed in Michigan (Public Act 141), Briggs said it was an ideal time for the Michigan legislature to take another look at how utilities went to work in the service business.

    Michigan lawmakers, reacting to the alliance’s descriptions of unfair business practices, put language into the act requiring the PSC to establish a “code of conduct” controlling all electric utilities and their affiliated companies.

    In December 2000, the PSC wrote a Code of Conduct that had “90% of what we wanted” said Briggs. Some of the guidelines included:

  • Utility nonregulated and regulated businesses cannot share joint marketing, promoting their business with the same funding.
  • Utilities are banned from using bill stuffers to promote nonregulated ventures.
  • There can be no use of utility employees doing nonregulated work.
  • Utilities cannot finance nonregulated interests; they must form a spin-off separate affiliate (they must hire and fund their operations as any normal business would have to).
  • Utility companies have asked for an extension of the deadline to conform to the guidelines and the PSC has granted them a stay, of which Briggs said, “The order is so loose that the original 60-day stay is almost open-ended — until all debated issues are settled.

    “But it is our opinion that the Code of Conduct is in effect and should be adhered to now.”



    On A Final Note

    Reckinger had some comments to make about the programs that involve utilities and hvacr contractors within the service area. He noted that in order to be a member of the MichCon referral network, contractors had to sign a clause which absolved the utility of any liability if anything were to go wrong with equipment that was installed or serviced.

    “There have been a lot of programs that look very attractive on the surface and there are contractors that get an initial benefit from the programs,” he said. “But I haven’t seen any programs that have lasted for any length of time. Eventually the relationship with the utility involves some sort of liability, or contractors are asked to sign some kind of moronic, hold-harmless clause.”

    Briggs added that Consumers Energy went one step further, past relinquishing liability. “They [Consumers], in exchange for adding a contractor to their referral list, got the names of all of the contractor’s service customers,” Briggs said. “Then when the utility decided to stop referring, they automatically had the contractor’s customer list so they could go after them.”

    Briggs said that although some contractors have benefited from a referral program, “that doesn’t make it right.

    “Some people benefited at the cost of all of the other ratepayers. You have to look at the cost to utility customers, not to the individual businesses who may have benefited.”



    Sidebar: Blue Dot Parent Postpones Webcast

    SIOUX FALLS, SD — In light of the tragic events of Sept. 11, NorthWestern Corp. has chosen to postpone its New York Analyst and Institutional Investor Conference and its live audio webcast, which was scheduled for Thursday, Sept. 20. The company is reviewing alternative dates and plans to reschedule the conference.

    “In the face of Tuesday’s tragedy, our immediate concern is for our nation’s recovery and healing,” said Merle D. Lewis, chairman and ceo. “Our support and prayers are with all who were personally affected by the devastating events.”

    NorthWestern Corp., a Fortune 500 company, provides energy and communications services and solutions to more than 2 million customers across America. Partner entities include NorthWestern Services Group, a provider of electric, natural gas, and communications services to Midwestern customers; Expanets, a mid-market U.S. provider of networked communications solutions and services; Blue Dot, a provider of air conditioning, heating, plumbing, and related services; and CornerStone Propane Partners L.P.

    For more information, visit http://www.northwestern.com (website).

    Publication date: 09/24/2001

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