New Technology, Deregulation Pose Challenges

By John R. Hall

HUNTSVILLE, ON, Canada — The Heating, Refrigeration & Air Conditioning Institute (HRAI) of Canada held its 2001 Annual Meeting here in Huntsville. The theme of the meeting was “Linking the Supply Chain.”

“My message in this year’s annual report is that our industry must commit to transforming our business environment,” said HRAI chairman Rick Jones. “Resisting this technology transformation could be catastrophic for the industry and make our businesses less competitive, provide opportunities for new competitors to enter the market, and lessen our ability to meet customers’ changing expectations.”

Jones asserted that HRAI was committed to providing leadership in the areas of new technology and supply chain management. “The challenges facing the hvacr industry are increasing in the regulatory arena and the Canadian marketplace,” he concluded. “I am pleased to report that your association is perfectly positioned to respond to these challenges and assist in transforming the business environment towards a more profitable future.”

Energy Prices, Utilities

Speaker John Todd asked his audience for specific concerns regarding utilities and the energy market. The president of Ecoanalysis Consulting Services, Inc., Toronto, ON, listened as hvacr contractors talked about rising energy prices. Most of the audience seemed to agree that high energy prices provided more opportunities for business rather than more risks.

Other contractors were concerned about utilities entering the field of hvacr services. At that point, Todd said, “There is a way to fight back by getting into selling commodities, just like your competitors.”

“The problem with the regulatory market is that it is run by rules and not by the market,” he said. “We actually don’t have deregulation, we have reregulation” — that is, the shifting of one type of commodity selling to another.

Todd maintained that rules don’t drive the market — the market drives the market. Therefore, contractors have to be prepared for fluctuations in demand for their products and services in a deregulated market, and adjust accordingly.

“When the price of energy goes up, you gear up for more demand for high-efficiency equipment,” he added. “But when prices go down, you have to be able to react to less demand.

John Todd talks to seminar attendees about deregulated energy markets.

A Tale of Two Areas

Todd cited two deregulation experiences, one in Alberta, Canada, which has caused confusion and concern, and another in Pennsylvania, which has been a cause for optimism.

Alberta:

Government attributes electricity price increases to higher natural gas prices and supply shortages.

Market forces have not created sufficient market incentive for generation investment.

Shareholder process favored large power producers at the expense of smaller consumers.

Pennsylvania:

Prior to deregulation, energy prices were 15% above the national average.

Deregulation was fully completed by Jan. 1, 2001.

Post-deregulation shows that energy prices are below the national average.

Shareholders are involved in the process.

The spot market accounts for 15% to 30% of electricity sold.

There’s an ample supply with a 25% increase in generation capacity in the next five years.

There are reliable transmissions systems.

“A lot of rules have been set up and then changed by utilities. We have to wonder if deregulation is a swing of the pendulum which will eventually come back, or if it is a permanent change,” Todd said.

Publication date: 09/24/2001

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