Reynolds shares wheeling lessons
By Staff -- Purchasing, 1/15/1998
Some experts warn that pilot retail wheeling (customer choice) programs do a poor job of approximating power market conditions as they will exist under restructuring. However, they say, for industrial customers with virtually no experience in treating power as a market commodity, pilot programs might be a good way to get your feet wet."I would advise any customer to stay informed about programs or pilot projects across the country," says Michael Kearns, of the Energy Resources Dept. at Reynolds Metals in Richmond, Va. "Not only is there an opportunity to save money but there also is an opportunity to gain valuable experience in the competitive electric environment that is emerging."
Kearns--one of four people responsible for procuring low-cost, reliable power and natural gas--should know. "We spend over $400 million per year on energy," he notes. "Energy expenditures can represent almost one-third the cost of producing aluminum and are a significant cost factor at many of our fabricating facilities."
While supporting political and legal efforts to move restructuring forward, Kearns says Reynolds jumped at the chance to participate in a retail wheeling pilot--dubbed PowerPick--affecting its Wallkill beverage can plant in Middleton, N.Y., and served by Orange & Rockland.
The details
The Wallkill plant produces around a billion cans per year and uses slightly more than four megawatts of power at a load factor greater than 85%, according to Kearns. Under PowerPick, Reynolds was allocated 3.89 megawatts of power to displace with competitive market energy. O&R charges for delivery of the wheeled power. Reynolds continues to pay O&R full demand charges and the utility continues to serve as it did prior to program implementation. Also, O&R receives a cut of the customer's savings. "As you can see," says Kearns, "the program offers little opportunity for competition. Nonetheless, we estimate our annual savings to be $150,000, or about 7% of our original annual electricity bill at the plant."
The idea for Reynolds was to obtain savings while gaining "hands-on" wheeling experience. "One of the first lessons we learned," says Kearns, "was that there is no industry-standard contract for power purchases in retail wheeling programs." As such, he says, Reynolds needed to customize its power supply agreement. Some important details:
* The company wished to purchase up to its allocation. Reynolds was allocated 3.89 MW. Most suppliers were accustomed to selling power in MWs, not fractions.
* Several proposals were submitted with generator site and a specified transmission route. Since Reynolds had no direct experience with specific transmission issues, it requested that the supplier make all arrangements to have power delivered to O&R.
* Reynolds needed suppliers to schedule power to conform with its load profile. Power deliveries needed to be reduced for scheduled plant maintenance and vacations. Hourly balancing is performed by O&R.
* In case of a curtailment from the power supplier, O&R would provide backup service at O&R's incremental cost of service; supplier is responsible for cost increase associated with incremental supply.
* Reynolds evaluated the cost of firm versus interruptible service from the power supplier. Because of the potential number of curtailments and because of the small price tradeoff, Reynolds chose firm service.
* Reynolds had to choose between a firm fixed price or a percentage of savings versus the utility's charge for energy. It chose a fixed price to ensure specific savings.
Based on his experience with PowerPick, Kearns suggests that--with the goal of preparing users for real competition--future retail pilot programs need to address these issues:
* Stranded costs. Not an issue under PowerPick. "In the future, most utility customers will need to consider the cost of leaving the utility service and whether the stranded costs are justified."
* Transmission capacity/utility service issues. Questions include: What grids serve your utility? Are there capacity constraints? To what ancillary services must customers subscribe? Can customers return to the utility for bundled service at any time?
* Power supply. Kearns observes that "end users in most pilot programs are insulated from power suppliers not performing." He recommends that "state Public Utility Commissions issue reliability reports on active marketers or perhaps have a certification board for marketers that are serving participants in the wheeling programs."
Info Source
NATURAL GAS MARKETERS' REPORT CARD--Energy Planning Network (EPN) of Massachusetts recently conducted a survey in which customers graded more than 70 natural gas marketers on an academic scale (A+ to F). Gas marketers and brokers were graded in 12 areas including: understanding client needs, competence of work force, problem resolution, price, timeliness of response to customer needs, and reliability. EPN's 40-page study may be purchased for $195 by calling (978) 264-0654. Next planned report card (scheduled for release in first-quarter 1998) will rate energy service companies (ESCOs) nationwide.
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