Constellation is buying the retail arm of ConEdison Solutions to expand its reach in strategic deregulated markets. The move is part of a larger strategy by Constellation, and parent company Exelon, to grow its regulated and deregulated utility business through acquisitions. Terms of the deal were not disclosed.

Exelon merged with Constellation in 2012. When Exelon moved forward on its $6.8 billion merger with Pepco earlier this year, Pepco Energy Services went to Constellation.

For ConEdison Solutions, a subsidiary of Consolidated Edison, it can now focus solely on its deregulated business that offers energy efficiency and renewables services. Much of ConEdison Solutions’ energy services had been focused on federal and municipalities, universities, schools and hospitals (MUSH) markets, but it is increasingly focused on commercial sectors. Con Edison is also looking for more stable earnings and the volatility of the retail market did not provide that, according to Mark Noyes, CEO of ConEdison Solutions. 

Constellation is the largest competitive energy supplier in the U.S., with more than 2.5 million commercial and residential customers. The margins are thin in the competitive retail business, so building out a portfolio that better matches retail demand with Exelon’s generation is a priority, according to Constellation. On the regulated side of the business, mergers such as Pepco and Exelon add stability as power generation revenues slump in the face of low natural-gas prices and increased efficiency.

Constellation will also inherit ConEdison Solutions’ contract for community choice aggregation in Con Edison’s territory in Westchester County, New York. Constellation had won the contract for the CCA in New York State Electric & Gas Corporation’s territory. Currently, only seven states have active CCA options, but more are evaluating it. Ideally, CCA would be served by a robust market of retailers to pick from, but if consolidation accelerated significantly in the deregulated retail electric business, it could stifle the options for both individual consumers and CCA members.

But because so many people are on default service from their incumbent utility, any reason to shop around is welcomed from retail providers such as Constellation, which has CCA business in multiple states. “Community aggregation is a good way to entice customers to choose where they buy their energy instead of just defaulting to buy from the local utility,” said Mark Huston, president of Constellation’s retail business. “We’re committed to the space.”

The move by ConEdison Solutions to spin off its retail arm while holding onto its efficiency and renewables services business shows that there is perhaps not as much synergy between the two as would be expected. 

“Those services require a deeper understanding of a customer's energy use and operational requirements,” said Andrew Mulherkar, a grid edge analyst with GTM Research and author of The New C&I Energy Management Landscape: Integrating Procurement, Efficiency, Generation and Storage.

Also, competition is growing stiffer when it comes to offering more holistic energy services to the C&I sector, whether that’s from utilities like Edison expanding its ESCO business with Edison Energy or technology conglomerates like GE’s Current trying to take a greater stake in the industry. Noyes, however, is not fazed by the competition. “The space is so large and at such an early stage that we can all play pretty successful,” he said. 

New York, where ConEdison Solutions is headquartered, is one of the key states where bundled offerings are most conducive, according to Mulherkar’s report. Currently, off-sitesolarand energy efficiency offer the bulk of value for commercial energy management services companies. ConEdison Solutions said it is looking for rapid growth in its efficiency and renewables business.

The acquisition is expected to close by the end of this year.