 National Association of Counties * Washington, DC / Vol. 30, No. 8 * April 27, 1998 (Whoops! We goofed last issue. We had one more installment in our series on electric utility restructuring. So think of this as a bonus. This article is the fifth and final in a series produced for County News by Public Technology, Inc., the non-profit technology arm of the National Association of Counties. A variety of resources are mentioned throughout the article that can be accessed on PTI's home page at http://pti.nw.dc.us.) Electricity is a $200 billion market in the United States today. You can imagine that the 3,071 counties in the United States provide an attractive share of that revenue to the industry. No matter whether your county government is a large or small consumer of electricity, all local governments have come to increase their dependence upon electrotechnologies to get the job done. With the advent of intensive use of computers, geographic information systems, e-mail and Internet, and opportunities like electronic commerce, your electricity service becomes more and more critical to your operations. But who exactly will counties be buying power from in the near future? This article focuses on this issue from the three perspectives of a typical transaction: 1) the consumer 2) the suppliers and 3) the energy traffic controllers. The county as an electric customer Under the current structure, a customer is an account number. When you call your electric company, the first thing they usually ask for is your account number. Each meter is assigned an account number, and a utility bill is typically generated for each meter. For large facilities having several meters (such as a convention center), you may receive one bill combining all of the metered accounts for that facility into one total amount due, however, not all utilities provide even this level of customer service. This means that, as a local government customer, you probably represent several meters for several facilities for which you receive several bills. From a more human perspective, the customer is the person responsible for paying the electric bills. In some cases, county electric bills are paid by the individual departments to which the bills are sent for the facilities under their area of responsibility (such as libraries, parks and recreation and human services). For others, it may be that the Facilities Management Department or Purchasing Department receives all electric bills for all county facilities. Whether or not all of your county's electric bills are consolidated for all of the meters and facilities, getting a handle on that information is a critical first step to being an educated consumer. The suppliers Under the regulated monopoly system that has been in place for decades, you have had one retail electric supplier, and it will most likely still be in the game competing against the newcomers. In the competitive market, you will be able to purchase your electricity and other related services from a variety of suppliers, including your local electric supplier. Keep in mind that the entity that owns and operates the distribution system - the wires that bring the electricity from the substations to your facilities - probably won't change. They will still be charging a fee to transport the electricity from whatever company you buy it from to your facilities. The first type of electricity supplier is the Traditional Utility - either investor-owned utilities, municipal electric departments, cooperatives or other public power entities. Some of these companies may be harder to distinguish in the future because:
The second type of company you may be doing business with is the Power Marketer, some of which, as noted above, may actually be wholly owned subsidiaries of investor owned utilities. Independent power marketers or brokers are also springing up that will not be beholden to any one utility company, but rather will shop the market for the best prices without any vested interest. They will purchase the actual power at wholesale rates and pass it on to you at prices they will negotiate. All power marketers are required to file with the Federal Energy Regulatory Commission (FERC) to sell power in wholesale markets, FERC being the entity which controls interstate energy commerce. FERC has set up a Web site to post the real-time prices of electricity from all producers. This system represents the first fully electronic commodity trading platform. Each power marketer has to report quarterly purchases and sales of power to the FERC - information you may wish to peruse as you consider potential suppliers. Beware of whom you do business with, however, because there are currently no restrictions or prerequisites for registering as a power marketer. The third type of entity that may wish to offer you electric service is an Aggregator. An aggregator is an entity formed as a kind of buyer's cooperative with the aim of obtaining the best terms for the participating members through volume purchasing and coordination of administration. Local governments themselves are forming aggregations, such as the Association of Bay Area Governments (ABAG) in California. This group currently serves some 104 units of local government in and around the San Francisco Bay area. Other aggregations that may attempt to recruit your county could include regional, state/local government partnerships, national associations or others of either like-minded or complementary (in terms of load profiles) electric customers. In these cases, the county would sign a contract with the aggregation entity, which would in turn hold a contract with an electric supplier. It is unclear at this point who will be responsible for distribution and billing of electricity for aggregators, and different power marketers and utilities are gearing up to provide different levels of service. For example, one national gas and electric utility, Enron, will bill directly to end users within an aggregation, whereas LG&E Power Marketing, Inc. will only sell to aggregators at this point, and will not do direct billing to end users within an aggregation. In this latter case, it will be the responsibility of the aggregator to contract for distribution and billing and to collect payment from each member. The new energy traffic controllers Currently, regional power pools exist to coordinate and schedule the flow of electricity from all power plants. There are six regional power pools in the United States today. Determining which power plants to operate is a complex process that attempts to ensure that adequate amounts of electricity are available to supply all of those entities that need electricity at any given moment. This optimization problem must take into account which power plants are available, which ones are out of service (experiencing an outage) and what each one costs to operate. They also consider the comparative costs of electricity available for sale outside the pool (called excess capacity) and purchase this power if adequate supplies of electricity are not available within the pool. The regional power pools operate in conjunction with their member utilities, and they are thus obligated to sell the electricity produced within the member pool first. Under a competitive market, with transactions spanning the country from a wider variety of suppliers, the industry-operated regional power pools will not be adequate for maintaining unbiased control over the transactions. To that aim, the federal government is considering formation of new regional entities called Independent System Operators or ISOs. California has already formed an ISO under state legislation and other states may follow suit. The ISO is deemed necessary because it will be independent of the electric companies that currently operate the power pools and it will therefore have no vested interest in scheduling the power plants of those companies first. The ISO will have the critical function of scheduling transactions (transporting) of electricity over the transmission system or grid and ensuring that adequate supplies are being provided for sales to customers from all suppliers. To effect their transactions between the suppliers and their customers once a sale has been made, Power Marketers and utilities alike will need to schedule their electricity sales through the ISO. There will be a protocol of priorities to be followed by the ISO, to ensure timely scheduling, transmission availability, avoidance of congestion (e.g., traffic jams on the transmission lines) and proper pricing. In short, the ISOs will be an important part of ensuring that you actually receive the power you have purchased on a timely basis. If all goes well (and there is no reason to suppose that it won't at this point), this whole procedure will be blind to the customer. Resources For a more detailed explanation of the way electricity transactions will take place under the competitive marketplace, check out PTI's recently published booklet under the Keeping the Lights On series titled: "Get Ready for Power Marketing." You can obtain a copy by either ordering it from PTI's home page at http://pti.nw.dc.us or by viewing the full text online. If you want to view the real time prices of suppliers today, as well as find out important background data on prices that have been charged to other customers, check out the new Web site called Energyworld at www.energyworld.com. The site is managed by Peak Network Communications LLC, a private company. Information Week recently ran a story about one manufacturer's discovery from browsing this site that their utility was charging a wide range of prices to similar customers (as low as .03 cents per kwh to 84 cents!). Significant savings were achieved when they complained to their electric utility and renegotiated their contract. That's a good illustration of how information is power and under the deregulated marketplace for electricity, you the consumer will have access to more information than ever before to help you benefit from the competitive electric marketplace.
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