AS NEW ENERGY VENTURES, LLC EXPLAINS IN ITS PROMOtional literature, it took a long time in California for electricity competition to move from the category of "wacky idea" to widespread acceptance.
But that was before the California electric market opened in April, and before NEV had formed its New Energy Buyers' Alliance, a consortium of clients for whom NEV buys wholesale energy. The alliance includes associations like the California Retailers Association, Western Growers Association and the Independent Colleges of Southern California. Among its corporate members the alliance counts AlliedSignal, Inc., Georgia-Pacific Corp., Ralphs Grocery Co., Robinsons-May and Sumitomo Life Realty.
Michael R. Peevey, president of NEV, touts his company as an electricity retailer that is free to buy wholesale wherever it can cut the best deal (em whether in an established spot market or through a bilateral contract with an individual trader or power producer. Peevey, who in a former life was president of SCEcorp and Southern California Edison Co., believes that NEV customers can beat the price of electricity otherwise available through the California Power Exchange.
But information services plays an important role as well. Peevey claims to offer billing and energy management services, using the Internet as a gateway. In almost all cases, a customer must replace its existing meter. NEV's billing and energy information system requires a meter than can track energy use hour-by-hour, and that can also communicate with a remote computer system. NEV says it is looking at an investment of $860 per meter, which it deems "small" in relation to the possible magnitude of energy savings.
A privately held company, NEV is 50-percent owned by Tucson Electric Power Co.; NEV executives hold the other 50 percent. Public Utilities Fortnightly spoke with Peevey to hear his experience in California's new electric market (em and elsewhere.
The Mood in California
Can you describe the mood in California during the first week of customer choice? What's different from what you thought it would be?
I'll have to think a little about that. I don't know about the mood, but let me put it this way: Everything is going off smoothly and without a hitch. Power Exchange prices are a little higher than a lot of people anticipated, given this time of year. And it's off to a good start.
Are there any customer accounts that you are particularly proud of reeling in?
Oh sure. There's Ralphs, a grocery chain in Southern California. Their peak usage is about 100 megawatts. That's one. And Macy's. And Robinsons-May, a department store chain, TAMCO steel, Catholic Health Care West, which is 26 hospitals and the city of San Jose, the biggest city in the Bay Area. And there are several other cities in the Bay Area that we also contract with.
You mentioned PX prices. Am I correct that you are doing your buying outside the PX or are you buying both?
We're doing both. We've bought outside the PX, locked in and resold power¼ locked in the margin, and we'll give that margin to our customers, minus our fees. Do you follow what I'm saying?
Is there any pattern to your decision to buy inside or outside the PX? Is that something you decide on a moment's notice or is there an overall strategy there?
Well, it's not a moment's notice¼ I guess you could say to some degree it's an overall strategy. The premise on which this business is based, here in California, is that we can lower your utility bill (em your generation function (em over what would have otherwise been the case if you'd stayed with your local utility, the UDC. To do that means that we have to beat the PX price, right? So we have to find sources of power that are below the PX price. Then the question of how we pass that on to the customer is a function of a lot of different things and it can vary from week to week and month to month.
Now that's not an automatic pattern. All I did is comment on one way of doing it. Let's say the PX price is $25. If you can buy power at $20 and you can sell that power to somebody else, let's say between $20-25, you can pocket that difference and then give the customer a discount off the PX, which is the published price that he sees.
That's one way of doing it. Another way is just to pass on a direct price to the customer. But you have to balance your demand, which could vary each hour of the day, as you know. We have all the responsibilities now in working with the schedule coordinator, which for us is LG&E, that the utility has historically done (em balancing loads, load shaping, load following.
Are you a registered meter service provider?
Yes we are, right. We have a contract with LG&E and Schlumberger. What is happening is that there has been significant utility foot-dragging on meter switch-ups. So we have not installed as many meters as we would have wished. Nonetheless, we are serving several hundred megawatts of load here is California as we speak.
This situation may or may not persist through June, but it's been a continuing source of irritation and stress and economic harm, frankly, and customer disappointment that not everybody that was ready for direct access on April 1 is being served because of the inability to switch out there own meters and install new meters. The utilities all have insisted approaches that require the most literal and difficult interpretation of every CPUC regulation.
Did you participate in some of the working groups on metering (em data standards and information flow (em either your company or representatives for your company?
The answer is yes.
So you didn't get everything you wanted in those groups?
That's a fair interpretation, yes. Well, let me say this. The utilities go in and say, "Well this is the first time ever for us. This is stressful. We don't know how to do this." They have a million-and-one barriers. In my view, it amounts to foot-dragging. It amounts to not being responsive to getting this going at an early date.
How does metering fit in with your corporate strategy? What is the value proposition that you see for your customers?
There's two pieces to it. We sell to customers who are members of what we call our buyer's alliance. We think we have the biggest customer base in California. Now PG&E Energy Services may dispute that (em I don't think Enron would (em but clearly we are one of the dominant players here in California. Everyone else has got a niche here and there.
We feel we can beat the PX price and save you money on the commodity. But also, customers find it very attractive that we provide information services and management tools that they heretofore have not had.
For example, we provide energy management services for commercial customers with multi-location facilities. Historically, with few exceptions, utilities have sent each store a bill, depending on the day of the month that they do their billing, which is done on a zip code basis. So for Ralphs grocery chain, which has 300-plus stores, or anybody that has multiple outlets, they get all these bills at different times of the month. The bills are then assembled and are sent off to some central place where the company analyzes them and then they're paid. OK?
But forget all that. In the future (em and we're doing the billing here in California (em we're sending one bill, to one location, once a month, and it will have all the backup data by store so that each store manager can drill down as deeply as possible about their own usage and the overall energy manager for the company can look and compare outlets, facility by facility. This is a great management tool. And they can look it all up on their PC. And they can compare Outlet A with Outlet B with Outlet C. So they have similar footprints, with the same climatic zone. If one is using $50,000 more electricity than another in a month, then the question is, "Why?" And they can get an instant answer.
That has not been available in a central way before. It's a significant and sophisticated advance and a new management tool. We're able to do it because we're starting out as a company. We went out and got the best technology possible and off we went. And this is a product that we developed with LG&E, with Schlumberger and with MCI.
Is there intelligence to the meters that you've installed?
Well yes, these are smart meters. They read every hour. Hell, they can read every minute if they have to. They have to read every hour because the PX price changes every hour (em and it will. They send a usage signal to a central server and then it's all pulled together. But my point is that we're providing service that's independent of commodity savings and also an enhancement to customer relationship.
Some of the members of your buyer's alliance are big players. Do you allow them to help make the commodity buying decisions, or do you make all the calls at NEV?
We make all the decisions. But we commit in writing in a contract to them that they'll never pay more than they would have paid if they had stayed with their UDC. Now, most of them buy on a share-the-savings basis where if we can save them so much below the PX price then we keep a percentage and the bulk of it goes to them. A few others have bought on a fixed-price basis.
Then, the higher the PX price goes, the better it is for you, potentially? Is that correct?
Well, it depends on what we're getting the commodity for itself. If we're buying at $20, and the anticipation is that the PX will be $25, but instead it ends up at $27, it's better for our customers and for us. The CTC [competitive transition charge] is small, because rates are frozen.
Venturing to Other States
What about activities in other states? Have you seen the same opportunities elsewhere as in California, where you can install a meter for your customers to give them enhanced service?
Don't misunderstand me. Everybody over 50 kilowatts that's going to participate in direct access has to have a new meter in California. So, anybody below 50 kW (em and it will probably eventually be below 20 kW (em will be load profiling. We have to go out and put in new meters. We're serving only those we've actually installed the meters for. We have a lot of other people that because of utility foot-dragging we haven't got the meters installed yet. You follow me? It takes a little time for people to get their load data in, so there's always a lag here, but some of it, I think, is deliberate. So that's the situation in California. But it's not necessarily the situation elsewhere. And we will adapt to whatever the market is, as long as there's an opportunity to save people money.
So you've got sales in Pennsylvania and New York, but none in New Hampshire?
None in New Hampshire. We had sales last fall in Rhode Island, but we pulled out of that market last year because the public utilities commission changed the rules.
We're active in New York state, right now, and we have three, four offices on the East Coast. We have an office in Boston, New York, and upstate New York (in Rochester) and also in Philadelphia. We have customers in Pennsylvania that we're providing electricity to as we speak and we have customers in New York that we're providing electricity to as we speak.
Are you providing both commodity and metering services in New York or Pennsylvania? Your service in Pennsylvania and New York is not quite the same as in California?
These are pilot programs. So I'm sure we will eventually. California just kind of went cold turkey and jumped into this thing. But these other states have decided to make it a much more drawn-out process with pilots. I don't know why they need pilots, frankly, California's doing fine without 'em.
Bruce W. Radford is editor of Public Utilities Fortnightly
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