April C. Murelio
Facing their own competition challenges and setting aggressive goals for growth, businesses now more than ever see their energy service providers as partners, expecting them to help keep costs low and profits high.
During a recent industry gathering, Michele Kidd, senior purchasing manager for Proctor & Gamble (P&G), summed it up. “I care about price, service and reliability. Whether I`m buying energy, bottles or boxes, those three things are on my mind.”
Kidd said P&G, which wants to remain the world`s low-cost provider of home care products and double its yearly sales to $70 billion by 2005, expects deregulation to play a key role in helping it meet those corporate goals.
Because of this, she said, P&G wants to partner with energy companies who support deregulation and can provide innovative products and advice as the competitive market unfolds. “We can`t sell high-priced products, so we can`t buy high-priced products,” Kidd said. “We`ll be looking for suppliers who can help us keep our promises to our shareholders and our customers.”
Power aggregation or “leveraging buys,” as Kidd said, seems a particularly attractive strategy to organizations like P&G with multiple locations across the country.
Hoping to reduce its annual $200 million energy bill and capture the benefits of deregulation, P&G divided its 50 North American sites into six regions. The regions-designed according to their proximity to Independent System Operators (ISOs) and pipelines-are headed by area managers who purchase energy for all sites in their territories.
P&G also plans to aggregate power for its suppliers, a network that includes about 300 large industrial users. For example, Kidd said P&G recently issued an RFP (request for proposal) to supply nine of its Northeast locations and one supplier site with power, and P&G has signed a letter of intent with another supplier to act as its energy agent.
According to a recent survey by MarketLine International, P&G is certainly not alone in using power aggregation to reduce costs.
MarketLine maintains a database-Panel systems-that targets key end-user sectors, with each sector covering about 5 percent of the relevant market depending on floorspace, beds, sites and energy usage.
In its most recent survey, 67 percent of the respondents in its commercial sector plan to aggregate their own sites, and about 5 percent plan to aggregate with other companies, including rivals. This represents more than two-thirds of the potential aggregation market.
The ability to aggregate power purchases in an open market creates some unique opportunities for customers and energy service providers. And from large to small, businesses, manufacturers, universities, hospitals, cities, and restaurants are taking advantage of alliances that provide cheaper power and new services.
However, as Kidd pointed out, the cookie-cutter approach to marketing these alliances will not work, and marketers must be familiar with their customers` needs and be creative in meeting them. “I want to work with someone who understands my business, listens to my needs, and then provides customized solutions,” she said. “That`s who gets my money.”
Following are a few examples or power aggregation alliances:
– New Energy Ventures, a California-based energy services company that entertained this year with its provocative series of ads urging Congress to speed competition and “change the power” in government, has 40 percent of the California market and 35 percent of ConEd`s service territory in New York.
It aggregates on behalf of the Pennsylvania Travel Council, which includes hotels, B&Bs, resorts and colleges; Northern California Grocers Association; and government entities like Santa Clara County. Services include power purchases, efficiency services, distributed generation, and low-cost supply of energy-related equipment and supplies.
– Sempra Energy Solutions offers Foodmaker Inc., the parent company of Jack in the Box restaurants, discounted electricity to more than 350 locations in California; efficiency improvements, including equipment retrofits; and Encharge, Sempra`s energy information service provided to more than 1,100 Jack in the Box restaurants in 11 states throughout the West.
An invoice verification and energy information system, Encharge provides consolidated energy usage reports. Sempra acts as a liaison between Foodmaker and its more than 100 utility providers nationwide, with all utility bills sent directly to Sempra where they are reviewed, processed and paid.
– EnerShop, a subsidiary of Central and South West, also focuses on usage info for the Dallas Building Owners and Managers Association (BOMA), which it dubs the Dallas BOMA EnerACT Consortium. Under the terms of the two-year agreement, EnerShop provides its EnerACT (Energy Aggregation and Control Technology) to Dallas BOMA, and energy discounts to its members.
EnerShop, which also uses EnerACT at 19 La Quinta Inns in Texas and California, installs the metering and systems needed to collect real-time energy data from subscribing Dallas BOMA members.
Members, who manage more than 650 facilities and an annual electric bill of $150 million, then access the information from a secure web site. And members can subscribe to a variety of other services, including load and budget forecasting, equipment sub-metering, and alarm response.
Like Sempra`s alliance with Foodmaker, the ability to help partners understand and manage their energy needs remains a key draw to power aggregation packages.
“There is no doubt that the data Dallas BOMA can accumulate on the electrical usage of commercial real estate in Dallas using EnerACT will optimize our negotiations with energy providers in the future deregulated marketplace,” said Cara Baker, Dallas BOMA president.
– Select Energy`s $17 million agreement with Shaw`s Supermarkets revolves around Sempra`s ability to deliver low-cost power to 59 supermarkets in Massachusetts and Rhode Island. “Because we are already very well equipped with energy management technologies, we pursued savings on electricity supply as the next logical step,” said Kathy Loftus, Shaw`s energy and regulatory affairs manager.
– PG&E Energy Services, provides about $350 million of electricity and related services to the Massachusetts High Technology Council. The non-profit council has 200 members, including Data General, EMC and other major technology firms, which consume more than 1.2 million MWh a year. Others with PG&E Energy Services include IBM, McDonald`s restaurants, Blockbuster video and music stores, and Neiman Marcus department stores.
– National Energy Choice, a Boston-based energy aggregator, and Select Energy, a Connecticut power supplier, teamed up to offer reduced prices to customers in Massachusetts and Rhode Island through a program specifically designed to match and group energy users with different usage profiles into one large aggregation block. For example, National and Select group movie theaters, which use much of their energy at night or off peak, with schools, which use more energy during the day or on peak.
– PP&L EnergyPlus offers the Pennsylvania Energy Consortium, which includes half of the state`s school districts and more than 20 municipalities, the standard fare, but with a unique twist. As part of the aggregation agreement, EnergyPlus establishes an education fund-with an estimated 1999 contribution of nearly $100,000-for participating member school districts.
Power aggregation strategies and opportunities seem as varied as those they aim to serve and please, requiring an increasingly flexible approach to doing business. Michael C. Burke, New Energy Ventures founder and vice president, describes his company`s aggregation strategy:
“We`re as flexible in pricing as we are in anything else. If our customers want a share of the savings, we give them a share. If they want a fixed discount, we give them one if we can,” he said. “Happy customers are the best marketers-they are the best sales people.”