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ESCos, Round Two: Fighting for Market Share

Fortnightly Magazine - September 1 1996

EE92920105, December 15, 1992) that prompted the Standard Offer Program. This program, started in 1993, set a standard energy-efficiency contract under which PSE&G agreed to buy measured, verified energy savings over 5-, 10- and 15-year periods from customers or third parties like ESCos. To fuel competition, PSCRC was to act as an ESCo in its own territory while also acting as a lender for other ESCos.

"As a banker, they know us intimately," Sutcliffe says of PSCRC. "On another side, we compete with them head to head, day to day. And they try to keep a Chinese wall between those two functions."

A report on the program's outcome by The Results Center of Aspen, CO, gave generally high marks.

Arthur R. Coughlin, PSCRC president, points out that larger customers had anywhere from four to 12 bids on a standard offer contract (em a sign of healthy competition.

And despite concern that the most lucrative projects would be picked first, such "cream skimming" proved largely illusory. "Energy savings in customers' facilities have by and large been more comprehensive than feared, signaling strong competition between energy service companies and the rise of a sophisticated energy service infrastructure in New Jersey," the report reads.

However, the program has drawn criticism for PSCRC's role in providing financing to

companies that couldn't get it elsewhere. "This has raised concerns about competitiveness, underscoring a fundamental conflict with PSCRC's role," according to the report. "ESCos don't mind going head to head with PSCRC's delivery of energy-efficiency services, but don't want their competition to be bolstered by PSCRC as well."

The report also notes that the level of competition in PSE&G's service territory has driven some ESCos to other markets.

From PSCRC's perspective, Coughlin points to other program drawbacks: "Given where we are today, I'm not sure PSCRC would be a model for the future, not unless the utilities, especially given the uncertainty, would want to commit to 10- or 15-year pricing terms when they don't know if they're going to be buying their own generation in the future."

He says the next wave of business will entail expanded offerings, unrestrained by standard offer rules. PSCRC will develop performance-based contracts with longer terms and lower-to-no reliance on utility incentives. It also will combine gas-brokering services.

Energy services markets are developing in New Jersey, California, New York, and in nearly every other state. And everyone is watching as utilities, ESCos and evolving service companies stake out their claims.

Shrewd service may help decide the fight. But the winner could be the one with the deepest pockets. t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.

E-mail: schuler@pur.com

California Mulls Surcharge to Boost Energy Efficiency

Working group would tap revenues for 1 to 3 percent

Two market for ESCOs: One Private, One Public

After debating the hot buttons of a competitive market, California ESCOs, utilities, and enviro-consumer groups have presented a plan to the state Public Utilities Commission (CPUC) for the post-restructuring energy services business.

The Energy Efficiency Working Group report, prepared by more than 15 stakeholder organizations, responds