June 25, 2007
Big guys benefit from deregulation
By Adam Smartschan
Banding together is one solution for small businesses facing big energy bills
Nearly a decade after the state Legislature deregulated the electric power industry, the plan seems to be paying off for large businesses that consume prodigious amounts of electricity.
The little guys? Not so much.
Brian Murphy, the owner of Marlborough energy consulting firm Colonial Power Group Inc., said that most of the businesses who've benefited from choosing their own electricity supplier are the ones whose big accounts make it worthwhile for the power companies to chase them.
Marketing to small businesses and residential customers, he said, isn't nearly as cost-effective for the suppliers. As a result, not many have saved as a result of "energy choice."
"The penetration of the market is almost exclusively at the upper end of the usage scale," Murphy said.
In the deregulated marketplace, "incumbent" suppliers like National Grid and Western Massachusetts Electric still own the infrastructure that physically delivers power to businesses and homes. And, unless the owner elects differently, they also provide the electricity itself.
Customers, however, can opt to have their power supplied by a different company. The rates can be lower, and - in theory, at least - the user can negotiate a specific deal with the provider.
Murphy said it's impossible to say for sure, but it seems like businesses using third-party providers are finding the relationships fortuitous.
"It's safe to say that, if things weren't good, you'd see them jumping out," Murphy said.
Missing out?
The benefits aren't as widespread as was hoped a decade ago. Because it's so difficult and expensive for providers to market effectively to small clients, experts said, small businesses and homeowners often either don't know how to change their supplier, or simply don't have enough incentive to do so.
As a result, many large firms are getting cheaper electrical solutions tailored to their specific needs, while smaller companies aren't experiencing similar positive effects.
"Small offices, small companies or small stores are in a situation where they're looked at by the marketplace as almost like a residential customer," said Larry Chretien, the executive director of Boston's nonprofit Massachusetts Energy Consumers Alliance. "The time it takes to market for a limited number of kilowatt hours is pretty high. When you talk about a big user, whether it's a municipality, hospital or large company, those end up getting favorable treatment."
As a result, it's become advantageous for small businesses and residential customers to band together in aggregation; acting, in essence, like a much larger consumer. Last month, Marlborough selected ConEdison Solutions as its competitive power supplier under the Community Choice Power Supply program.
In turn, ConEd Solutions provided the city - the second in the state to reach such an agreement - with an electricity supply plan similar to what it would provide to a single, large entity.
Murphy's Colonial Power Group facilitated the deal.
"The bridge to that competition is municipal aggregation community pools, which achieve that leverage of a bulk buying group," Murphy said. "When you pull together, you look the size of a large company."
An attractive market
The competitive supply game remains a lucrative one for power providers. Murphy said there are an "appropriate" number of providers at the commercial and industrial level in the state, and more are coming. Houston-based Gexa Energy, for instance, is just beginning to enter the Massachusetts market, with some 470 customers by last week.
Gexa Vice President of Market Development Larry Boisvert said the company was excited to expand from its roots in similarly deregulated Texas to the commonwealth.
Serving small customers, he said, is relatively challenging, but potentially valuable for both sides.
"We're able to do both small, seeing-eye customers as well as medium and large ones," Boisvert said. "Obviously, the larger customers have more usage, so the revenue we would get would be larger if you keep the profit margin the same. And you can give them a little more personalized service. With small customers, though, we're also very competitive."
Nearly a decade after the state Legislature deregulated the electric power industry, the plan seems to be paying off for large businesses that consume prodigious amounts of electricity.
The little guys? Not so much.
Brian Murphy, the owner of Marlborough energy consulting firm Colonial Power Group Inc., said that most of the businesses who've benefited from choosing their own electricity supplier are the ones whose big accounts make it worthwhile for the power companies to chase them.
Marketing to small businesses and residential customers, he said, isn't nearly as cost-effective for the suppliers. As a result, not many have saved as a result of "energy choice."
"The penetration of the market is almost exclusively at the upper end of the usage scale," Murphy said.
In the deregulated marketplace, "incumbent" suppliers like National Grid and Western Massachusetts Electric still own the infrastructure that physically delivers power to businesses and homes. And, unless the owner elects differently, they also provide the electricity itself.
Customers, however, can opt to have their power supplied by a different company. The rates can be lower, and - in theory, at least - the user can negotiate a specific deal with the provider.
Murphy said it's impossible to say for sure, but it seems like businesses using third-party providers are finding the relationships fortuitous.
"It's safe to say that, if things weren't good, you'd see them jumping out," Murphy said.
Missing out?
The benefits aren't as widespread as was hoped a decade ago. Because it's so difficult and expensive for providers to market effectively to small clients, experts said, small businesses and homeowners often either don't know how to change their supplier, or simply don't have enough incentive to do so.
As a result, many large firms are getting cheaper electrical solutions tailored to their specific needs, while smaller companies aren't experiencing similar positive effects.
"Small offices, small companies or small stores are in a situation where they're looked at by the marketplace as almost like a residential customer," said Larry Chretien, the executive director of Boston's nonprofit Massachusetts Energy Consumers Alliance. "The time it takes to market for a limited number of kilowatt hours is pretty high. When you talk about a big user, whether it's a municipality, hospital or large company, those end up getting favorable treatment."
As a result, it's become advantageous for small businesses and residential customers to band together in aggregation; acting, in essence, like a much larger consumer. Last month, Marlborough selected ConEdison Solutions as its competitive power supplier under the Community Choice Power Supply program.
In turn, ConEd Solutions provided the city - the second in the state to reach such an agreement - with an electricity supply plan similar to what it would provide to a single, large entity.
Murphy's Colonial Power Group facilitated the deal.
"The bridge to that competition is municipal aggregation community pools, which achieve that leverage of a bulk buying group," Murphy said. "When you pull together, you look the size of a large company."
An attractive market
The competitive supply game remains a lucrative one for power providers. Murphy said there are an "appropriate" number of providers at the commercial and industrial level in the state, and more are coming. Houston-based Gexa Energy, for instance, is just beginning to enter the Massachusetts market, with some 470 customers by last week.
Gexa Vice President of Market Development Larry Boisvert said the company was excited to expand from its roots in similarly deregulated Texas to the commonwealth.
Serving small customers, he said, is relatively challenging, but potentially valuable for both sides.
"We're able to do both small, seeing-eye customers as well as medium and large ones," Boisvert said. "Obviously, the larger customers have more usage, so the revenue we would get would be larger if you keep the profit margin the same. And you can give them a little more personalized service. With small customers, though, we're also very competitive."
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