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Load Aggregation:

The Wolf at the Door?

Of course, there's nothing to stop a utility from aggregating its own customers.

WHAT, EXACTLY, IS LOAD "AGGREGATION?" Is it a threat, an opportunity, or merely a sales tactic?

Actions taken in California, as well as in pilot programs across the country, place customer aggregation on the leading edge of efforts to pull native load from electric utilities.

Ironically, present-day utilities already "aggregate" their customers (em albeit into a single group. It's called the "customer base." But nothing stops utilities from adding a few innovative wrinkles to gain value from aggregation strategies. In fact, if utilities could somehow put aside the notion of collegiality, we might see an aggressive power company profit handsomely from aggregation (em or even branch out of its service territory.

The First Wave

While energy entrepreneurs are hoping to lure customers away from utilities through a variety of new products, it is the aggregation of load and services that seems to be attracting the most attention. Aggregators work along the same lines as long-distance companies, buying co-ops, credit card handlers, and other organizations that compete for the privilege of bringing many end users together. They act as the "business agent" for the aggregated group to obtain low-cost power or reserve transmission capacity, much gas marketers have done for the last decade.

• In California, New Energy Ventures (NEV) claims to have signed up nearly 5,000 megawatts (Mws) of load (roughly 10% the state's load), and is looking eventually to aggregate 10,000 Mws.

• In New Hampshire, Granite State Energy has signed up many former customers of Public Service of New Hampshire by grouping together enough load to deliver a 20 percent overall savings using market-based electricity.

• In Massachusetts, Xenergy (recently purchased by a division of New York State Electric and Gas Co.) has used a pilot program to aggregate members of the Massachusetts High Technology Council (a group of industrials including Raytheon Corp.).

• Duke/Louis Dreyfus (an alliance between subsidiaries of a utility and a financial trading firm) signed an energy supply services agreement covering many facilities of United Parcel Service.

• Other utility offshoots, such as Southern Development and Investment Corp. (a division of The Southern Company), are similarly pursuing large energy users in other utilities' territories.

Many marketers and aggregators are active elsewhere, most of them small and generally unknown to utilities. George Leon, of National Analysts, Inc. (a utility consulting firm), summed it up this way: "You can lose your shirt to the small guys and not know it until it's over."

Likely Targets

To a utility, tomorrow's aggregated customer groups will look a lot like today's "municipal" customers, but will lack the same physical boundary restrictions. Prime candidates for aggregation include:

• Chain stores and restaurants (Enron supplies gas to many McDonald's franchise locations)

• School and medical systems (SPURR/REMAC has gathered 350 schools and colleges in California)

• Government buildings (marketers are already pursuing defense facilities)

• Apartment housing groups (Power Clearinghouse recently tried (em and failed (em to serve an Austin apartment complex as a wholesale group)

• Banks and money handlers (Duke/Louis Dreyfus