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Energy Service Companies: No More Mr. Niche Guy

Fortnightly Magazine - April 15 1996

utility commissions. That effort spawned others. Most recently, NAESCO and other industry groups worked with DOE on the latest national protocol, which is about to be published.

"A lot of people are very excited about that because they think that's the next generation," Singer says.

Where Are They Going?

Protocols and measurements aside, NAESCO turns much attention to the federal government procurement process and weightier issues of deregulation. Federal procurement of energy services by third parties doesn't fit neatly with other federal procurement procedures, so a solution has been a long time coming. The government, meanwhile, is under an executive order signed by President Clinton to reduce energy consumption by 20 percent.

"It's such a tremendous opportunity because the federal

[government's] budget for utility [services] is $4 billion a year, and our industry estimates that it can save about 25 percent, which means $1 billion in energy savings," Singer explains.

That effort, however, will seem small compared to the next great market opportunity: restructuring. NAESCO plans to make sure regulators and legislators understand what energy efficiency can do for them. Generally they have no idea, Singer admits: "Conservation is always viewed as an add-along, as opposed to being central. I think that's what they're doing now in California."

Some of the confusion involves unanswered questions: "I think there's a feeling that the energy service company will always have and has always had the fundamental relationship with the customer, the end user," Singer says. "But how the energy service company is going to fit in the hierarchy of deregulated entities is still an open question."

Another hotbed of restructuring opportunity for ESCos, NAESCO believes, lies in the industrial

sector. Many industrials have long-term energy service contracts. But in New York, for example, industrials recently fought to get rid of DSM (em not because it couldn't provide economic benefit, but because they felt they were paying for little in the way of real service.

"In several states [NY, CA, MA], I think they got hosed," Singer explains. "And they rebelled. But it was almost an inappropriate response because they never really recognized what it could do for them. I think that's changing and only for the better."

Singer emphasizes that getting regulators and others to recognize what ESCos can do, and where they should fit in overall energy planning, is only the first step. Regulators must be made to support an interim user charge to fund efficiency programs. What makes these "nonbypassable" charges necessary, Singer explains, "is that ... certain entities in the market enjoy the benefits of the historical franchise, whereas others don't."

And what about users' reaction to the charges? "If overall you're paying less, there should be no reaction," she says

Singer adds: "In principle, my membership believes they have a first-class product. And that they can, in an unfettered environment, compete head to head with any provider. And prevail. The issue is getting to that unfettered environment." t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY. Email: Schuler @ pur.com

An ESCo Sampler

. CES/Way International, Inc.