N.J. contractors are digging in for lively utility competition

September 14, 2000
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NEW JERSEY — With the nickname of the “Garden State,” one would expect to see miles of farmland. While that scenario may play out in rural regions of New Jersey, it’s the metropolitan areas that are making headlines and big impressions these days.

The state that gave us Frank Sinatra, Atlantic City, and Princeton University is also known as the most densely populated state in the nation. In fact, three quarters of its population lives within a 30-mile radius of New York City.

It’s no wonder that area developers are looking to shoehorn in new commercial and residential projects.

The New Jersey-New York skyline will soon grow again. The Meadowlands Sports Complex recently added the Continental Air Arena (home of the NBA’s New Jersey Nets) to the nearby Giants Stadium (home of the NFL’s New York Giants).

A “small city” is also on the rise nearby.

“Sam LeFrak, the single largest landlord in New York City, is building ‘Newport City’ on the waterfront,” said Sal Fichera, president of F&G Mechanical Corp., Seacaucus. “The market for the New Jersey waterfront is hotter than a firecracker right now.”

Another aspect of New Jersey life that is hot and getting hotter is utility deregulation and competition. In February, Governor Christie Whitman signed the restructuring of the state’s utilities into law. The new law entitles New Jersey gas and electric customers to shop around for the best rates, beginning in December.

In anticipation of new competition, some of the state’s largest utilities have branched out into the hvac and appliance service-repair business. The state’s largest utility, Public Service Electric & Gas Co. (PSE&G), has already signed up customers for its appliance repair business, although its plans to expand throughout New Jersey have been temporarily sidetracked (The News, Sept. 7, 1998).

What does all of this mean to area contractors?

Some are concerned about utility competition, especially if an unregulated utility service company is being subsidized by ratepayer dollars from the regulated side. But most contractors believe that good service and a strong customer base will be enough to weather the storm following deregulation.

Level playing field

The light bulb over John Conforti’s head went off a while back. Conforti’s idea was to merge companies in order to strengthen his position against utility competition. Conforti, owner of Comfort Conditioning Co., and Joe DiGangi, owner of neighboring Polar-Air Inc., Whippany, took a look at what was happening in the utility service business and decided to join forces, reduce overheard, and use their combined resources to solidify their customer base.

The new company, Air Group LLC, was forged in early 1999. Its base of operations is within a stone’s throw of Fritze KeySpan, a family-owned hvacr contractor who was purchased by KeySpan Energy, a subsidiary of Brooklyn Union, a utility that provides natural gas to more than a million customers in New York City.

“This merger gives us the opportunities to do things we couldn’t do alone,” said Conforti. “We can’t compete against utilities for price, but we can compete for service.”

“I don’t think utilities can do the installation work on their own,” added DiGangi. “They’ll call on private contractors to do a lot of the installation work.”

One area contractor said that name recognition and “free” service calls tips the scales toward a local utility.

“Utilities have a distinct advantage over us,” said Bill Fraser Sr., president, FrasAir Contracting, Inc./Service Experts, Manville. “For years [Brooklyn Union] has been the company to call with a gas problem. They were giving away free service and I still don’t think they charge for minor service calls today. They have to be subsidized through their rate base in order to cover these free calls.”

“It’s been a never-ending and expensive fight [against the utilities],” said Clint Crane, president, Reel-Strong Fuel Co., Cranford. “We don’t think the utilities can legitimately make money without cross-subsidizing. However, every two years the utilities must have an independent audit done.”

Another contractor says that if utilities can get their feet in enough doors, the whole service market could turn upside down.

“Utilities are getting into light commercial work and are grabbing up some strip mall business,” said Jeff Somers, service operations manager, Monsen Engineering Co., Fairfield. “They’re not hurting us too much right now, but four years from now I might not be able to say the same thing.

“If they start grabbing up consolidators and union contractors, watch out.”

The topic of utility competition will make New Jersey an interesting test case for the nation. Over the next few years, some of the decisions made by contractors and their customers will have ramifications around the country, perhaps overshadowing the consolidation trend.

Consolidation: why and why not?

While utility stories grab local headlines, New Jersey contractors are watching a story that is a little less newsworthy to the general public — consolidation.

The contractors interviewed for this story agree that consolidation is good for the industry and doesn’t pose the same competitive threat as utilities.

“We’ve been solicited by consolidators and we communicate with them once in a while,” said Frank Hughes, president, Hughes Environmental Engineering, Inc., Montvale. “They are good for competition. But I don’t buy the notion that what they are offering is better than what we have now, like better benefits. The union contracts provide for health care that is just as good as the consolidators’.”

Hughes is a member of Excellence Alliance, Inc. (EAI), which he says is a “defense mechanism against utilities and consolidators.”

Another EAI member, the Meyer & Depew Co., Kenilworth, said it has no plans to sell out the business to a consolidator. The contractor is happy with the services provided by the alliance and sees no urgency to change ownership.

“EAI is not just a buying group, it also offers professional services,” said Bobby Ring, executive vice president, Meyer & Depew. “They give me a lot of information to digest each week, and I am getting a lot out of the relationship.”

One contractor who sold to a consolidator said he had some personal reasons that affected his decision to join Service Experts.

“I leaned toward consolidation because of my age and concerns that the business might go downhill,” explained Bill Fraser. “I would like to stay on for at least six years as long as I feel good. But you can never bet on good health.”

Fraser’s son also works at FrasAir, but apparently he has shown no desire to follow in his father’s footsteps; “He’d rather stay in engineering and design work.”

With no family succession plan and a lot of pending projects, the owners of F&G Mechanical saw consolidation as a way to expand the business through tuck-ins. They also viewed consolidation as a way to keep doing what they love to do.

“I’ve been changing fittings and pulling orders since I was 10 years old,” said Sal (Butch) Giardina, F&G’s secretary-treasurer. “Now with consolidation, I’m working harder than I ever have before. The Comfort Systems people allow us to go on with business as usual. We picked them because of their decentralized approach.”

Crane said he would rather keep his sights set on utility competition, but he acknowledges that consolidators are making a presence in the New Jersey market. He may have to adjust his way of doing business if the walls start closing in.

“Consolidators have as much right as anybody to get into this business,” he said. “If they buy up our competitors and offer lower prices, then I will have something to worry about.”

A good tech is hard to find

Crane, whose staff includes five service technicians and two oil truck drivers, is fortunate to have loyal employees. One has been with the company for 34 years and another, 22 years.

For other contractors, loyalty is just as important. However, the number of loyal employees hasn’t kept up with an increasing customer base.

The lack of qualified technicians spills over into both union and non-union shops.

“There is a lot of service business and not enough service technicians,” said Somers. “Even being a union contractor doesn’t ensure that you’ll be able to find enough people. The days of calling the union hall and asking to send over some guys is in the past.”

Fichera said he has not seen the lack of technicians reaching an epidemic proportion in his business. Rather, he is concerned about filling the white-collar jobs. “It’s more difficult to find project managers than to find union field workers,” he said. “It’s probably a little different for the non-union guys.”

Ring, whose company is a non-union shop, said he would rather spend more time with customers, but the lack of qualified help is keeping him tied up.

“People are our most valuable asset —- and our biggest problem,” he said. “I spend half of my time on personnel problems.

“We try to get our people involved by offering incentives for them to go out and find people who will want to work with us. We are offering a $500 bonus to employees if the person they refer to us spends at least 90 days on the job.”

Conforti said he is confident he can attract people to his newly merged business without offering incentives.

“We can get people because we can make people,” he said. “We have good training programs and a full-time trainer. People have left us to go to work for the utilities, and they have now come back to work for us.”

Somehow the word utilities creeps up into the conversation, whether it’s a discussion of consolidation, training, service, or profitability. In the next three installments, we’ll look at some of the individual businesses and paint a picture of an interesting and rapidly changing New Jersey market.

“The next couple of years should be very interesting for New Jersey,” said Crane. “Our whole way of doing business is going to change.”

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