The problem of utility competition is one that rears its head from time to time. You know the argument — utilities engage in unfair competition by offering bundled services, which include service/maintenance contracts and “free” equipment if a customer converts from one form of energy to another. The most common of these promotions involve free heat pumps for conversion to electric heat and free boilers or furnaces for conversion to gas heat.

Many contractors assert that utility companies are thus using ratepayer funds to compete with them (a process called cross-subsidization). Contractors complain that this poses an unfair advantage because utility companies can wrap up a customer with the “one-stop shopping” concept, all the while using the money from the contractors’ own utility payments to help foot the bill.

But cross-subsidization isn’t the only raspberry seed in the teeth of HVACR contractors — it is the “freebies” too.

Fight Or Switch?

“The ratepayers should be mad as hell that they are subsidizing the ‘free’ boilers and furnaces,” said contractor Dave Yates. “Stockholders should be ticked off, too. If the shoe were on the other foot, the utility would be screaming bloody murder and requesting a rate hike from the PUC [Public Utilities Commission].”

Contractor Chuck Shaw notes that we all pay anyway. “Nothing in life is really free. The last time I spoke to a [utility] representative about this, I understood him to say that these ‘freebies’ come out of the promotion and advertising budget. Where do most companies get money to advertise and promote? From revenue. The homeowner is paying for this by increased rates.”

Some contractors have preferred to partner with utilities rather than fight with them. One contractor, who prefers to remain anonymous, said: “If I didn’t do this I’d be losing good customers I already have to someone else. So why give customers away, especially since we are making the same money anyhow?”

The Big Picture

Industry expert and writer Dan Holohan chooses to look at the big picture. Holohan, a regular contributor to our sister publication, Plumbing & Mechanical (PM) and owner/ operator, recognizes the possibility that huge utility companies have the buying power to start a bidding war amongst boiler manufacturers. In a recent PM editorial, he pointed out that if the utility’s own service department handled the installations and if the utility asked the boiler manufacturer to submit invoices directly, the process could eventually cut out both the local contractor and the traditional wholesaler.

Another contractor, Frank Wilsey, noted that it is not just wholesalers and contractors who are getting squeezed — it’s the consumer as well. “We scream loud and long and sometimes impose fines and tariffs when foreign manufacturers import steel and other goods at below cost, to squeeze or eliminate domestic manufacturers,” he said. “This is exactly the same thing. Here we have a big gas utility trying to squeeze or eliminate competition from oil companies. And guess who’s paying for it? Right, everyone who uses gas in their area.”

Yates said, “The small independent contractor — the one who provides that personal level of service the big utilities will never have — will eventually go the way of the ‘Mom and Pop’ stores I remember so fondly.”

John Hall is business management editor. He can be reached at 734-542-6214, 734-542-6215 (fax),

Publication date: 01/27/2003