Competitive Power

Nov. 2, 2005
Beat the energy crunch by shopping for the best deal

The winter heating season is under way; but, in terms of energy costs, 2005 already has been a record-setting year for building owners, managers, and contractors. Double-digit increases in electricity prices were driven by a rising demand for oil, coal, and natural gas at a time of tightened supplies - a global phenomenon expected to continue.

The Energy Crunch of 2005 may go down as one of the worst for the commercial sector, but it isn’t the first. Energy managers who’ve already turned down the lights and turned up the air-conditioning are looking for new ways to reduce and manage electricity spending. Tens of thousands of customers nationwide are taking advantage of competitive energy markets and buying power the same way they shop for other supplies and services.

Shopping for power is routine in some states; non-existent in others. About 22 states have open markets for electricity, natural gas, or both. The first competitive electron was sold in Rhode Island in 1997. At the time, it appeared as if energy would follow telecomm, banking, and trucking as the next major U.S. industry to restructure. The Northeast, New England, and Mid-Atlantic opened their power markets, as did Texas, Illinois, California, and others. But the collapse of the California market in 2000, and a series of high-profile scandals, slowed the pace of energy restructuring.

Restructuring movement is again gaining momentum, and studies have shown that open and competitive power markets reduce costs and improve efficiency, particularly during a period of high commodity pricing (as we have today).

The most obvious benefit of competitive power markets is the ability to choose pricing options and manage risk. The utilities maintain sole responsibility for power transmission, repairs, and system reliability; those services are not competitive. Competition is limited to the bulk power that is bought and sold on open markets.

As the competitive power supply business has matured, it has added products and services and brought a measure of innovation to an industry that has been slow to innovate. Customers with competitive suppliers can get online services that allow them to more effectively manage energy costs and customer service solutions that cannot be matched by regulated utilities.

Another trend has customers buying and managing power in ways reminiscent of financial portfolio management. Competitive suppliers offer a range of product options with fixed and variable rates. Fixed rates insulate customers when prices rise, while variable rates afford flexibility should they decline.

Risk tolerance varies greatly from customer to customer. Those on rigid budgets, such as government and educational institutions, often favor secure fixed-rate plans. Others, particularly seasonal businesses or manufacturers with multiple shifts, may be able to accept more exposure to volatile prices.

Shopping for a competitive supplier is not difficult. While savings vary from state to state, and even within utility territories, markets are generally open across much of the Northeast, Mid-Atlantic, and New England states, and in Texas, Illinois, and Michigan. The first step is analyzing recent bills to determine needs and usage patterns. Next is a frank appraisal of risk tolerance and answering the question, “What’s the best pricing option for meeting energy budget objectives: a fixed price, a variable price, or a combination?”

Support for competitive power markets is strong, vocal, and growing. Large to mid-sized commercial users are getting more value for their energy dollar. And, most importantly, they’ve taken a major step up from “rate payer” to “customer” - and they like the difference.

Clem Palevich is president of Constellation NewEnergy, North America’s largest competitive retail power supplier ( ), based in Baltimore.

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