A federal court blocks FCC's "TELRIC" cost rule, but some states endorse it anyway.
With the Federal Communications Commission (FCC) having lost a major court battle last fall, the state...
cross-purposes. The market requires utilities with pricing flexibility, the ability to develop and promote new products and services, and the freedom to act quickly to changing conditions (em capabilities inconsistent with traditional regulatory oversight. Utilities and regulators must collaborate to produce a transition strategy that allows beneficial resource plans to develop, while also enabling utilities to meet competitive pressures.
The actions of the next two to four years will determine the success of the energy service market. Dropping DSM programs completely at this time would leave many benefits on the table, and the energy-efficiency infrastructure that has been built in recent years would be threatened. Depending on how the transition materializes, the ESCO industry may thrive or stall.
Within several years, many DSM/energy service applications will likely take place outside of the regulatory environment. Utilities will increasingly choose to form unregulated retail companies separate from their distribution service companies. ESCOs are already moving into many service territories, both with and without the local utility's cooperation. Many of the large ESCOs are owned by utility companies (see table of major ESCOs). Among recent energy service activities by utilities: San Diego Gas & Electric Co. has formed Enova, Boston Edison has acquired Coneco; Potomac Electric Co. has formed Pepco Services to offer customers customized services; Bay State Gas, Connecticut Natural Gas, and Koch Gas Services have partnered to form KBC Energy Services; and Public Service Electric & Gas has formed Public Service Conservation Resources Corp.
Utilities and other companies are scrambling to position themselves as the energy providers of choice. But, in contrast to the low barriers to entering the electricity brokering market, the skill sets required to succeed in ESM are quite complex. Technical knowledge, energy-use modeling, sales and marketing savvy, superior customer service, financing ability, and relatively deep pockets are all required. Finding ESCOs to acquire, or finding employees with these appropriate skill sets, may become very difficult in the next few years.
Utilities will also need to accept a higher level of failure for
product/service introductions. The ESM market is inherently riskier than normal utility operations, and will require a streamlined decisionmaking process. But the biggest risk for utilities is losing the close relationships they have cultivated with their customers over many decades.
ESCOs already focus primarily on the customer, particularly the customer's business needs. They work diligently with trade allies to ensure timeliness and high levels of customer service. They have built relationships with strong financing organizations. And they have developed sophisticated market segmentation strategies to identify customers most likely to benefit from their services. While energy efficiency is often the cornerstone to an ESCO-customer agreement, many sales are clinched by the promise of improved operation and maintenance conditions, product quality, and working environment.
In today's market, we have dozens of ESCOs. However, none of these yet dominate the market. In the near future, one or more companies will rise and become major players in large regions, or even nationally. The two key qualities a "super-ESCO" must offer are trust and value. A few companies are positioning themselves now to