Tom May and Charles Shivery tried to portray the proposed merger of two of New England’s best known players in the energy markets as old friends deciding to take their relationship to a new romantic level. Their focus would be on building clean, renewable energy.
There was a time when such a merger would have been unthinkable. Between these two companies they dominated the power markets in Massachusetts, Connecticut and New Hampshire and they liked it that way. As CEO of the Massachusetts Municipal Wholesale Electric Company, a wholesale power producer serving 39 municipal utilities, my job was to keep these two giants from exercising market power and blocking our access to markets. We fought many battles at FERC over transmission access and other issues before ISO-NE.
But stuff happens and over time wholesale competition, divesture of power generation, the emergence of retail energy markets, ISO-NE, the demand for renewable energy all chipped away at any remnants of market power.
This proposed merger is a mutual aid pact in some ways designed to protect these investor owned utilities from the bleeding edge of the next onslaught of competition. Building renewable energy projects is about the only way they can grow so combining forces for that purpose while cutting costs to become more efficient in a decoupled rate environment is a strategy that makes sense today even though for some it is a little like a merger of the Boston Red Sox and the New York Yankees.
No doubt the business process consultants and systems integrators are cheering this news assured good bonuses for several years as all the spaghetti is unwound and rewound. But the future for these utilities now circling the wagons is far from certain. They face a new wave of competition much fiercer than anything my 39 muni’s could have ever imagined. And those system integrators helping them rewind the spaghetti in the back office may actually be getting paid to learn their vulnerabilities for the battles to come.
The big fear of these two utilities is becoming irrelevant in a rapidly changing energy market structure that consigns them to being energy delivery companies while the fun and profit is being made upstream building new renewable energy projects, mid stream by leveraging smart grid technology to digitize the grid and make it do tricks of efficiency and prowess engineers of past ages only dreamed possible. And then there are the aggregators and merchants bringing their constant energy management, demand response tracking, communications, networks, broadband delivered services and virtual power plants to chew their way into the food frame of these old utility giants like termites.
The energy future belongs to the very big, modular, digital and efficient and to the very small and nimble with those stuck in the regulated middle buried up to their ears in the mud and sand finding that their head is being sawed off a few strokes at a time with each new customer attrition wave.
And the biggest winners of all will be the middleware marvels who rewind the spaghetti and optimize the way things work to eek out efficiency, savings and byte-size performance improvements—and to the start-up marvels with new gadgets and tools that plug and play in that middleware focusing on distributed energy microgrids, home area networks as gateways to customers and let’s not forget those aggregators with their bundles of convergent convenience and value including communications, information, broadband, security, convenience services, entertainment and—oh yes—“ would you like energy included in your bundle, sir?”
That is the battle to come in the not too distant future for these Connecticut Yankees in Red Sox and others yet to merge.