RATE UNBUNDLING: ARE WE THERE YET?
FEBRUARY 15, 1996
Black, EISI's marketing director, says that argument doesn't hold water in the battle for market share.
"We're a free-standing energy services provider and we have to make a profit," he says. "We're not in there just to suck money out of our shareholder's pockets. And if any company thinks we're out there surviving solely on shareholder dollars, at some point along the line, the stock market's going to adjust for that because there'll be much greater losses at the [parent] company."
He says Entergy did not invest $125 million just to support EISI. "That's money being invested in the marketplace. Those are our financed projects that have a return. Every one has an internal rate of return that satisfies the parent corporation."
But do those dollars constitute project capital or operating/equity capital?
"Well it depends on how you look at it," Black says. "It's equity from the corporation's perspective. On any one deal . . . it's all project. It's capital because the way we go to market, we're investing. It's our technology. We're putting in our equipment."
By year-end 1998, EISI expects to generate more than $500 million a year in sales and to move into a profitable position, according to a 1995 annual report.
Black says his company sees itself as a service provider, not an ESCo. "If we don't perform, you don't pay," he says.
And it won't stick to any geographic area.
"We're setting up beachheads in a lot of other utilities' service territories," Black says. "We're no different than other utility ESCos or other ESCos that are branching out and installing offices. ... We're going where the business is."
In fact, he says his company has chosen not to join the National Association of Energy Service Companies (NAESCO) because
of competition: "There's this
awkward sense of being in a room with all your competitors because you really can't talk openly to them."
Black says he doesn't know any utilities that don't have an ESCo, or an interest in buying or developing one. Meanwhile, the independents are "screaming and crying" that they can't make it. Black believes his company's success will lie in "overcoming the cost of the infrastructure and the overheads and all those kinds of things and being able to make enough profit on those individual jobs.
"We have to be profitable, or we ain't gonna be around."
SYCOM's Sutcliffe thinks startups underestimate the complexity of delivering retail energy services: "There's no energy services company that I know that hasn't gone through three, four, five years of substantial red ink in order to break into the black, including ourselves.
"There is no existing member of NAESCO that has a track record of more than three years that is a utility sub that is homegrown."
He asks: How many companies can sustain a $5- to $10-million-a-year loss for several years?
Somewhat ironically, SYCOM is funded by Public Service Conservation Resources Corp. (PSCRC) of Parsippany, NJ. PSCRC was formed by Public Service Electric & Gas (PSE&G) under a regulatory stipulation (New Jersey Board of Public Utilities, Docket No.