Homebuilders retail competition cup runneth over

M. Bryan Little, Esq.

Despite the National Association of Homebuilders` fear that retail competition will destroy builder incentive programs, opportunities abound.

Currently, electric utilities offer builder incentive programs for line extensions and appliances. Designed to encourage the use of electricity over natural gas, these programs provide homebuilders a secure and comfortable source of revenue.

Homebuilders remain concerned about the uncertain effects of restructuring and retail competition. However, within the uncertainty, lie several new business opportunities.

With retail competition and the unbundling of generation, transmission and distribution, power aggregation becomes a key strategy for customers-industrial, commercial and residential-looking to secure lower prices.

In this restructured environment, the aggregator or marketer buys blocks of power and resells the power to the electric group. Individual customers remain customers of their utilities, which provide transmission and distribution services, while forming a new relationship with the aggregator.

Aggregators take many forms

The aggregator could be a utility affiliate, another electric company`s affiliate, a gas company, a telephone company, a rural cooperative or municipal, a power marketer such as ENRON, or even home- builders associations.

Like the Building Owners and Managers Association (BOMA), homebuilders associations could also team up with marketers to offer energy purchases as part of a package of value-added services to customers.

Whether the utility remains the sole provider of electricity under retail competition doesn`t mean the end of incentive programs. Instead of eliminating a source of incentives, retail competition multiplies the number of potential incentive providers.

Besides providing all customers with the opportunity to negotiate with multiple providers for an unbundled generation rate, retail competition provides homebuilders with an opportunity to negotiate with multiple aggregators, utilities and affiliates for incentive programs.

Historically, these incentive programs resulted from government mandated demand side management (DSM) programs. Originally designed to promote energy conservation, the success of DSM programs varied.

Some utilities benefited from DSM programs by trimming their loads and reducing fuel costs. However, most DSM programs received less than half-hearted efforts, with homebuilders being the only group to consistently benefit.

New age for incentives

Retail competition replaces government mandates with market incentives. With this in mind, there are two reasons why aggregators will provide incentive programs to homebuilders.

First, aggregators must compete with each other and the incumbent utilities and affiliates for customers. Because they must attract customers, aggregators must offer incentive programs, including appliances, home security, energy management systems, and a variety of other value-added services. Since no one initially serves new home buyers, homebuilders remain extremely attractive targets for incentive program campaigns.

Second, once customers sign up with an aggregator, the aggregator will promote energy efficient products to trim load and costs, striving to beat the incumbent utility`s price. Similarly, the incumbent still wants customers using electricity over natural gas and must continue incentive programs in a restructured environment.

To succeed, homebuilders must view the deregulation glass in a little different light. For some, it will remain half empty; for others it will be half full; and for those who take a proactive approach and begin negotiations with potential aggregators now, the glass will runneth over. n

M. Bryan Little is the federal liaison at the Public Utilities Commission (PUC) of Ohio. He also serves as chairman for the American Bar Association`s Public Utilities Committee of the Young Lawyers Division. (The view expressed in this article is the author`s own, and does not necessarily reflect the view of the Ohio PUC or the ABA.)

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