Mr. Kiesner

Eco-Friendly Practices

Today's Electricity Marketplace Calls for Smart Buyers

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

Bumpy start giving way to smoother ride

Since 1998, when California became the first to adopt competition, 23 states, and the District of Columbia-62 percent of the total U. S. population-have now approved or endorsed retail competition.

California's well-publicized problems with competition have raised concerns about the effectiveness of state retail competition programs in general, causing some state regulators and legislators to reject electricity competition altogether. But it's important to note that many of California's problems revolved around a flawed market design, price volatility, and tight supplies that were unique to that state.

Officials in Texas, which opened its retail electricity market to competition in January 2002, are cautiously optimistic about the success of deregulation there. Drawing on lessons learned from California, the state has encouraged the construction of new electricity generation and transmission capabilities, and developed a better market design. Since 1995, 57 new power plants have been completed.

Although only in its first year, and despite some early transitional billing issues, the results to date in Texas show businesses and consumers are excited about competition. According to the Texas Public Utilities Commission, more than 330,000 customers have switched electric providers since the market opened in January, gaining the mandated six percent savings that went into effect. As more providers enter the marketplace, this should spur even more savings for businesses and consumers.

Competition, now that it is a reality, is here to stay. The U.S. Congress initially looked at mandating a specific date for all states to begin competing. Today, however, they are focusing their attention instead on the issues in the country's wholesale electricity markets that effect the success of competition at the state level. These wholesale issues include ensuring that an adequate transmission system is in place to handle the demand for power, and that fair and clear rules govern the selling of power by independent energy producers and traders.

So, if your company has a hotel in an area that has adopted retail electricity competition or is considering it, how can you prepare for the change? Here are some suggestions.

Continue to use energy wisely

If you haven't already, you should take steps to make sure you're getting the most use from every dollar you're spending on electricity. Saving money from lower electricity rates due to competition is great, but when you couple those savings with lower overall electricity use through efficiency, your cost savings may increase dramatically. Contact your electric company to find out what programs or services they offer to help you take control over your energy bills. Or you can contact EEI's National Accounts Network, which has a publication available called "Managing Energy in Your Hotel" that provides a step-by-step guide for effectively managing energy. (www.eei.org/esg/na/welcome.htm).

Track state and federal initiatives

It's wise to begin tracking the changes being proposed or adopted for the electricity industry within the states where you do business. Regulation and legislation affecting electricity competition will vary from state to state. Some authoritative resources for you include: the state's public utility commission, your trade association, and your electric company. Many have Web pages that contain regularly updated information on deregulation initiatives.

Understand how your electric bill is calculated

You need to understand how much electricity your business uses, and what its associated costs are. Rates today are relatively straightforward. This may change as energy providers look for new ways to compete.

Your monthly bill is primarily based on how much energy you consume (measured in kilowatt-hours [kWh]), and for larger businesses, the relative demand it places on a utility's generating system.

The basic unit for buying electricity is the kWh. One kWh equals 1,000 watt-hours. A kWh equals one kilowatt of power taken from an electric circuit steadily for one hour. An electric utility typically charges for kWhs on a declining block approach, such as one price for 1 - 6,000 kWhs, a second price for the next 6,000 kWhs, etc.

Large businesses may also see a metered demand charge (measured in kilowatts [kW]). Your demand charge is based on the maximum number of kWs your business consumes at any one time, usually over a 15-minute period. Even though this peak is reached for only a short period, the provider must have the capacity to meet it, and therefore charges for that responsibility.

Consider real-time pricing options

Today, you probably pay a flat, guaranteed price for your electricity. However, many electric companies are experimenting with real-time pricing plan. Here, your supplier will set the kWh price based upon actual load shape or profile.

If you know what your energy usage is on an hourly, daily, weekly, monthly, and annual basis, and, if your hotel can shift a majority of its electricity demand back and forth to match your supplier's lowest cost hours, you'll pay less for power. Technological advancements are making real-time pricing more attractive by linking automated energy management systems to hourly utility price signals.

Even if you don't plan to shift your electricity use, understanding how much energy you use and when you use it can help you identify what energy management services you may need. Today, there are many metering devices on the market that collect and manage energy-related information. These meters can be bought or leased, or you can outsource the entire data collection and monitoring task to qualified professionals.

Decide what's worth extra

Beyond electricity, potential sellers may offer energy-related products and services to gain your business. Consider them as a part of the total electricity purchasing process. Some of the many options that may be offered include:

If your hotel has a number of locations, you may have the option of combining or aggregating their electricity loads to give you more bargaining power. If you operate one hotel, you might have the opportunity to form a purchasing pool with other businesses or even homeowners. Once banded together as a purchasing unit, your group may be able to negotiate a better price for electricity than any one of the businesses could alone.

As the issues surrounding electricity competition are resolved, the states will gain more confidence that competitive markets are the long-term answer for lower costs and prices, better efficiency in both power plant investment and operation, and greater innovation in services and pricing options for you-the energy consumer.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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