Utilities: Emerging Opportunities in Performance Contracting

Abstract

Many utilities are struggling to decide on the types services they want to offer their large commercial and industrial customers. A&C Enercom is often consulted to help utilities develop packages of services for these customers. Many of the utility services being developed for the large commercial and industrial sectors include those offered by a performance contractor. These services, including engineering assessments, design, construction management, and financing can be offered by utilities in a total turnkey approach with repayment on a paid-from-savings, or performance contracting, basis. Historically, utilities have used performance contracting companies (also referred to as energy service companies or ESCOs) to fulfill demand-side management obligations to regulators. Although many of these contracts have been successful, the utilities often have mixed (if not outright negative) feelings toward the performance contractors. These often adversarial relationships stem in part from the lack of utility control over an ESCO's relationship with its largest commercial and industrial customers. In many cases, a utility is concerned that the ESCO will follow-up the lighting or motor retrofit program with a cogeneration or other load reduction program. There is, however, an opportunity for utilities to take the knowledge and experience of the performance contracting industry they helped create and apply it toward the challenges they face in the emerging competitive marketplace. What type of performance contracting could utilities offer their customers? What customers are the ideal target for such services? What kind of culture change is needed within utilities to support the development of these services? How could such services complement existing utility products/services such as electricity sales, metering, and equipment maintenance? Although no one can know just where the utilities and their regulators will take the industry, nearly everyone agrees that it will become more competitive.