Issue #107, September/October 1999
Lessons for nonprofit entrepreneurship
By Daniel Hoffman
|Community Power has taken on a whole new meaning at the Pennsylvania
Low Income Housing Coalition (PALIHC), the state's largest affordable housing
advocacy organization. Community Power is PALIHC's wholly-owned, for-profit
subsidiary formed in response to electricity deregulation in Pennsylvania.
Consumers can now shop for their electricity generator, though responsibility
for the delivery of service remains with the familiar local utility. To
simplify the shopping experience for consumers, Community Power regularly
conducts a bid process in which qualified suppliers respond to requests
for service using a format that readily permits price comparisons. In this
way Community Power is the consumer's expert shopper.
Although PALIHC established Community Power to complement our housing missions, as outlined below, we were also keenly aware that in creating a for-profit subsidiary we were entering the world of nonprofit entrepreneurship, a world in which we had no organizational and limited staff experience. Though our statewide focus and orientation toward providing service without creating lots of new jobs makes this business somewhat different than many community-based businesses established by nonprofit organizations, we believe our experience, though not yet a full year old, provides some insight and guidance we can share regarding this larger trend of nonprofit entrepreneurship.
Community Power has three goals. First, through its preferred provider screening process Community Power makes sense of the confusing electric generation market. As with other deregulated industries, consumers receive lots of "information" from electric suppliers but ultimately find it difficult to comparison shop and know if they are getting a good deal.
Second, Community Power serves as an intermediary helping suppliers become aware of the opportunities in low- and moderate-income communities. Because there is no Community Reinvestment Act (CRA) equivalent for electric deregulation, PALIHC was concerned that the new electricity suppliers would redline low-income neighborhoods, limiting consumer choice. Our bid packet, which we distribute to potential suppliers, identifies the mix of locations (we serve consumers throughout Pennsylvania) and the array of our participants' consumer rate classifications and explains how and why our target markets can be safely serviced within the context of our overall program.
A principal target market for Community Power are federally-assisted housing managers, public housing authorities, and tenants in these buildings. While organizing Community Power, PALIHC sought and received a ruling from HUD that enables operators and tenants (whoever pays the electric bill) to retain savings gained by shopping rather than having HUD recapture these savings in the form of reduced subsidies and higher rents. We expect this ruling to be worth about $90 per year to the typical assisted-housing tenant.
Obtaining this ruling added to our credibility as a provider and demonstrated the importance of having a provider who understood the intricacies of electric deregulation and how rents and federal housing subsidies are calculated. No utility would have known (or cared) enough about low-income people and their housing to have sought this ruling. The assisted housing market would have continued operating as if deregulation had never taken place. Indeed, PALIHC first became interested in marketing electric service as a federally-assisted housing preservation strategy, the idea being that retained electric savings could be used to offset some of the expected federal budget cuts. In this way, we viewed Community Power as furthering our mission rather than creating a new one.
Third, we were looking for a source of unencumbered, unrestricted income for PALIHC to support our core mission - advocacy.
Community Power has been in business since the beginning of 1999, but already we have learned important lessons.
Relationship with funders. Despite the trendiness of nonprofit entrepreneurship, our funders were substantially disinterested in what they perceived as a new direction for PALIHC. Additionally, funders wanted their utility agenda to become ours. Funding might have been available to us if we had agreed to turn this project into an environmental activity and marketed higher priced products to low-income households (we defined our product as price sensitive only) or a community jobs program (we chose to not hire new staff and keep our expenses low). As a result, Community Power has had some problems with under-capitalization.
Importance of core support. In many ways our energy program is simply another affinity marketing program. If one's core membership is not behind the effort, it is difficult to achieve success, particularly in a low-margin business such as this. Because shopping for electricity is new and savings are relatively small, it has taken members longer than we anticipated to become aware of our program and enroll.
The marketing message. Is support for Community Power about supporting housing advocacy or about getting a good deal on electricity? Obviously both, but Community Power, like other "cause" based affinity marketers, including notably Working Assets, has had difficulty finding the balance between these two messages and communicating the message that potential participants would find most appealing.
Serving old friends. Although membership in PALIHC is not a condition of enrolling in the Community Power program, members realize that their support for PALIHC has enabled them to now have access to a new useful service.
Making new friends. PALIHC's membership is mostly the nonprofit housing community. Marketing to housing authorities and for-profit managers of privately owned federally-assisted housing has resulted in new non-traditional members who have also expressed interest in our policy agenda.
New avenues of advocacy. Although environmentalists, consumer activists, and low-income community advocates were active in the debate over how deregulation would be implemented in Pennsylvania, housing and community development activists, including PALIHC, generally were not. Now that most of the regulatory issues have, for better or worse, been settled, fewer activists are involved in the actual implementation of deregulation. Because Community Power has now become involved in implementing deregulation, we have frequent opportunities to meet with utility regulators and continue pressing for consumer-friendly policies.
How electric deregulation, or Community Power's participation in deregulation, will ultimately unfold remains unknown. The market in Pennsylvania does not fully deregulate until January 2000 and, to date, fewer than 20% of residential consumers have parted ways with their traditional electric supplier, evidence that consumers are not all that interested in shopping for an electric supplier. Perhaps more disturbing is the diminishing interest suppliers have in serving residential consumers. Suppliers are aggressively seeking large commercial and industrial consumers, but the number of suppliers willing to serve residential consumers is diminishing and price variation among the competitors is narrowing. Electric deregulation could still prove to be a bust for residential consumers.
On the other hand, Community Power has provided PALIHC with an opportunity to broaden its membership base, and electric service has become another item for discussion with lenders. The idea of building a relationship between lenders and Community Power first arose during a CRA negotiation in which PALIHC obtained an opportunity for Community Power to offer service to a leading lender. Community Power is now attempting to reconfigure the way it provides service so that lenders can receive CRA credit as part of their participation. This could create a significant new kind of partnership between Pennsylvania housing advocates and lenders and greatly increase the revenues of Community Power.
Our work on Community Power, like other nonprofit driven entrepreneurial activity, can have substantial benefits, but realizing those benefits can be difficult. Regardless of the activity, the competition one faces concedes nothing and carving out even small niches in large markets is a difficult thing to achieve, particularly if you are under capitalized, which you are likely to be. Success requires mobilizing core constituencies, finding new ones, and locating market niches large enough to be worthwhile and specialized enough for you to be able to compete on a favorable basis. Most of all our Community Power experience teaches us that nonprofits should not be afraid to try entrepreneurial activities.