Utilities shift strategy for deregulation

Trigen and Pepco prepare to compete for BGE's customers

Using different tactics

Trigen continues building small plants

Pepco offers services

February 13, 2000|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

With the dawn of electric deregulation in Maryland set for July 1, two energy companies with operations in the state are preparing to invade Baltimore Gas and Electric Co.'s home turf.

Yet, the two companies, Trigen Energy Corp. and Potomac Electric Power Co., are taking vastly different approaches, illustrating how deregulation has spawned a diversity of strategies as energy companies try to woo new customers.

Only time will tell which strategies will work, said Maurice E. May, an energy analyst with Friedman, Billings, Ramsey in Arlington, Va.

"What's interesting about utilities is that they all used to do the exact same thing," May said. "Twenty years ago, they all generated, transmitted and distributed power. But now utilities are restructuring.

To be sure, BGE will lose market share once its 1.1 million commercial, industrial and residential customers are allowed to shop for electric power among any number of retailers.

"Trigen has a different starting point. It started out as an unregulated entity with a relatively unique product," May said. "Somebody said, `It's not the strategy, but it's how you execute it.' "

Trigen Energy Baltimore, a subsidiary of White Plains, N.Y.-based Trigen Energy Corp., will continue its strategy of building on-site power plants for large commercial and industrial customers in the Baltimore area, and possibly for residential customers if they purchase electricity in bulk.

Trigen, an independent power producer, builds plants that combine heat and power generation, producing elec- tricity as a byproduct for sale to customers. The process reduces the amount of fossil fuel used and lessens the pollution emitted, compared with burning coal, oil and natural gas in conventional generation.

Pepco, a utility based in Washington that sells power in Montgomery and Prince George's counties, opted to put its generation assets up for auction and focus on its transmission and distribution business.

It is also pinning its hopes on Pepco Energy Services, an unregulated affiliate that sells energy and energy-related products and services to residential, commercial and industrial customers.

Pepco has another subsidiary, PCI, that develops local and long-distance telephone, cable television and Internet ventures.

Roger Gale, chief executive officer of PHB Hagler Bailly, an energy consulting firm in Washington, said there will be winners and losers as deregulation takes hold in Maryland and energy companies search for a niche.

"No company can say it has figured it all out and its future is secure," said Gale. "The market is still changing, but every company has a chance to make it work."

While Pepco and Trigen are each seeking to position themselves atop the energy market in the Baltimore area, they are going about it in their own way.

Trigen's plants are compact enough to be built on hospital rooftops, on college campuses in buildings that blend in with the architecture, or in warehouses in industrial parks, said James J. Abromitis, president of Trigen Energy Baltimore, which has had operations in the city since 1992.

The average power plant is about 25 to 50 megawatts. Trigen's parent's entire portfolio amounts to about 4,436 megawatts of energy. In comparison, BGE has about 6,200 megawatts and plans to build and purchase more power plants. Pepco has put its entire portfolio of 5,300 megawatts up for sale.

"All utilities are reinventing themselves. They are changing their names, and all of a sudden, customer service is important," Abromitis said. "Utilities understand they will lose market share, and the only thing to do at that point is to go elsewhere in the market and create new products and services.

"We don't have to come up with a new identity," he said. "We're in a good spot."

A $200 million deal

Trigen has had success in nipping at BGE's heels.

In September, Trigen signed a 20-year deal worth about $200 million with Sweetheart Cup Co. to provide electricity and steam to the company's manufacturing facility in Owings Mills.

The deal calls for Trigen and a partner to build a 15-megawatt plant on the site. Sweetheart is a BGE customer.

Also last year, the state awarded a $469 million contract to Trigen and a partner to provide electricity, heat and air conditioning to the University of Maryland, College Park.

University officials said the deal represented the first time a U.S. university contracted with an al- ternative energy supplier to outsource all of its utility requirements. Trigen Energy Baltimore has 125 employees in Baltimore, double the number of employees last year.

While Trigen has chosen to bulk up on generating assets, Pepco has decided to rely on its unregulated affiliates, such as Pepco Energy Services, which will market energy and products, services and advice to residential, commercial and industrial customers.

Management skills

In 1995, Pepco Energy Services started with six employees and racked up $100,000 in revenue. Last year it had $133 million in revenue. The company has 165 employees.

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