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ESCos, Round Two: Fighting for Market Share

Fortnightly Magazine - September 1 1996

sources to fill the gap."

But in view of the difficulties ESCos have faced and the failed efforts of others, most utilities are advancing very carefully. Two utilities known to be cautiously examining energy services markets are Con Edison Co. of New York City and Providence Gas Co. of Providence, RI.

Con Ed expects to submit a plan to the New York Public Service Commission by October 10, as part of the statewide restructuring plan, according to Richard Mulieri, a utility spokesman.

Providence Gas will confirm its heading on energy-efficiency services this month, says Jim DeMetro, senior v.p. of energy services. The utility may decide to steer clear

of the market, or to acquire an ESCo, an engineering firm, or another company working in the commercial-industrial sector. It would face tough competition from HEC, Inc. and EUA Cogenex Corp. (em established ESCos working in its territory (em but hopes that market research will find a niche those companies haven't sniffed out.

"There may be a gap, somewhere, in what the market would pay for," DeMetro says. "There's not many ESCos that are making money, so you have to wonder, Why is that? Is the market going to change sufficiently so that there will be new opportunities and they will be able to make money? That's really the reason we're starting with the market."

Like other utilities, Providence Gas understands first that its commodity will provide access to customers. Only then can the utility leverage its value-added services. But DeMetro believes any gold rush of utilities buying or building ESCos will prove to be a quiet one.

"Utilities don't want to be identified as being in the market [to buy] companies, because probably the price goes up as soon as people hear," he says.

Whatever the price, utilities will acquire ESCos. And ESCos will defend themselves with market-share protests. ESCos that paid their dues, or learned from market newcomers that went belly-up, are bound to put up a fight.

S. Lynn Sutcliffe, president of SYCOM Enterprises of Plainfield, NJ, may be one such defender. He refers to utility efforts at forming ESCos as "defensive-offensive" maneuvers (em utilities holding off other utilities while also retaining customers. The "action du jour," he says, is to downsize, form unregulated subsidiaries, and get into ESCos, gas or power marketing, and telecommunications.

But even on that path, "utilities as public entities are acting every bit as secretive as any other company," he says. "They are still using their monopoly status to try to create unregulated subs. There are just all sorts of issues that arise in terms of corporate resources devoted to the creation of these entities that are supposed to be independent.

"You can imagine an independent company that struggled to be profitable, and here its competitors are basically being fed by shareholder money," he adds. "But where does the shareholder money line stop and the ratepayer money line begin? It's a very, very fuzzy area. Those of us who have been through the crucible are correctly concerned about leakage between the ratepayer and shareholder issues."

Ken