By Chris Vilcsak
It's 10 AM and your work day is quickly dissolving into yet another chaotic stream of interruptions, 'need it yesterday' requests, and other work items heaped onto your plate of responsibilities, when you get a call asking if you've chosen your electricity supplier yet.
As though you needed this decision on your plate, too -- there's just no more room. However, the difference in how you view this call, and what its outcome will be, will completely depend on how well prepared you are:
- if you're prepared, the phone call will be very short -- with the caller ending up with the vast majority of the 'to-do' list items.
- if you're not prepared, you may have to clear the rest of your week (let's assume it's Tuesday) -- and quite possibly your month (let's assume it's July the 18th) -- to ensure you make the right decision for your company.
Purchasing preparations are not just for Ontario and Alberta
Even if you are not facing the imminent purchasing decision described above, you can still benefit from the same types of preparations as are going on in Ontario and Alberta right now. The benefits? A lot less stress and a much wider time frame -- and significant dollar savings to boot. Forward-thinking customers in those provinces have already started saving money; the customer savings of $300,000 mentioned at the end of this article were all achieved in markets that were not yet fully deregulated.
Where to Start
In most jurisdictions going through deregulation, the customer will continue to pay a regulated rate for the use of the transportation system (the transmission and distribution wires). This system includes the high-voltage lines, the major substations, the distribution lines (overhead and/or underground), the transformers located at the customer's location, and all the protection and metering apparatus throughout the system. There may be cost savings you can realize via creative arrangements with the wires owners, but we'll get to those later.
Primarily, deregulation and the move to customer choice are aimed more at the energy side -- you will be facing a decision as to who your retailer/marketer will be for energy.
There are several steps you can take when going down this road of customer choice. One such step is to understand a few key elements related to the purchase. These key elements are:
- your peak 15-minute demand
- how your historic load responded to influences such as leased space, production output, energy efficiency improvements, and weather
- your load flexibility
- your risk tolerance
Peak 15-minute demand
This value will likely play a large part in the cost calculation for the transportation (wires) usage. This is because all of the infrastructure leading to your site must be sized to allow this much electricity to flow to you. In other words, if you've hit a peak metered demand of 2300 kVA, the wires infrastructure must be sized for this capacity and the wires company will charge you based on this amount. It is also worth noting that several utilities have wires rates that are lower if you are served at a higher voltage level (as the need for transformers, etc. is lower).
There are additional charges related to wires usage; one of these is for the losses associated with delivering power to your location. As the wires system gets closer and closer to its maximum capacity, the losses go up dramatically. As a result, there may be a charge associated with your wires usage that is energy-based.
Although losses are also associated with how far the energy must travel from the generating station, most jurisdictions use 'postage-stamp' rates (meaning it costs the same to send it across the street as it does to send it hundreds of miles). Thus, it is unlikely that you can realize savings due to decreased losses simply because you are situated near a substation.
However, the forward-thinking utilities have structured their wires rates so that there are cost savings initiatives related to the wires system that may be available to large power users. One of these is off-peak power usage. If you are in a mixed-commercial supply area, the load on the system will likely peak during normal operating hours (8AM-6PM). If you operate your facility so that you peak late at night or early in the morning (10PM-6AM), you should not be charged at the daytime wires demand rate. Utilities that are progressive have implemented wires rates with these types of incentives.
Load Response to Various Influences
There are many influences on the load in a facility. Obviously, the type of facility you operate will determine the general extent that these influences have on your energy usage:
- industrial and manufacturing -- changes to the plant output levels will likely play the biggest part, although weather and the choice of equipment utilized may also be significant indicators of load change
- institutional (hospitals/colleges) -- the weather typically has the biggest impact on electrical load, but other significant influences may include the day of the week, the month or season, and operational changes such as the date the facility changes from free cooling to using an electrically-driven chiller plant.
- office, retail, and other commercial properties -- again, weather plays an important part, but influences such as changes to the occupancy rate or changes to major tenant loads must also be considered.
In order to determine the specific impacts of these influences, a load profiling and forecasting study should be completed. The end result of this study should be a list of external and internal influences, and the corresponding effect each has on your load.
Athough theoretical figures of the influences could be determined, we have seen the biggest benefits when historic usage figures have been analyzed to determine what is happening in the real world. If available, theoretical values are then compared to the results from the load profiling study to identify any obvious warning flags that appear.
Clients receiving the analysis and report consider the end result to be a very powerful tool, helping them achieve the following:
- a better understanding of the costs of operation. Many industrial and manufacturing clients end up with a more accurate figure for their incremental cost of production, allowing them to fine-tune the pricing of their products as well as any jobbing they may do for outside customers.
- a rigorous energy budget that is based on the influences that actually drive the energy usage. To complete a load forecast, the client must supply the input values that play a significant role in the overall energy usage; if weather is an important factor, a five-year average may be used. The end result is a 'normalized' energy usage profile, even down to an hourly usage projection for every hour of the year.
- easy budget variance reporting that takes most of the guess-work out of explaining the variance between budgeted and actual energy usage. As an example, if your plant's output changed from the monthly forecast and the weather was warmer than usual, you may have budgeted for $100,000 for the month but spent $120,000. Rather than having to explain a $20,000 (20 per cent) variance, the model should provide the answer to why your actual figure was 20 per cent higher than anticipated and leave you with a much smaller overall variance to explain. Wouldn't it be easier to explain a variance of 2 per cent instead of 20 per cent?
- elimination of the uncertainties regarding energy usage and the foundation for a Request for Purchase (RFP). One of the biggest changes in the move to deregulation is that energy becomes a commodity. The biggest impact when fixing a commodity price is the uncertainty (volatility) associated with it. The more information you can provide a marketer regarding your load and how it changes, the less risk they will assume and the lower your price should be. All of the above forms a part of your RFP for energy purchase.
Load flexibility<p> There are common elements to how the electric industry is restructuring in most jurisdictions. One of the biggest similarities is the concept of using a power pool. First, a brief discussion on how a power pool works.
A power pool determines energy prices by developing the supply curve (energy costs from the generators and importers), the demand curve (the energy usage by distribution companies, large customers, and exporters) and finding where the two curves meet. This intersecting point is the price that is set for that period, which may be as short as every minute.
When things are running smoothly and the industry (supply/demand) is in balance, there is little cause for concern as pool prices generally move very little from hour to hour.
However, when the industry develops an imbalance (such as the shortage of supply that developed in the late 1990's in Alberta), the prices can move dramatically. If, at any time, the load on a system (demand) is high compared to the generation capacity (supply), the pool price will rise. If the situation is critical, it will rise very fast and very high.
It is this pool price volatility that creates and increases the risk for a potential marketer, and so anything you can do to lessen their risk should save you money. One example of how you can lessen the risk is to understand and increase your load flexibility.
Load flexibility may arise due to several types of systems:
- backup and emergency generation
- thermal storage systems
- lighting, air handling, and other building management control systems
If I could offer one piece of advice as you move towards customer choice, it would be this:'Increase your load flexibility; it may be your single biggest cost control strategy in the future.'
For many of the clients we have worked with in the past, this feature has meant significant savings to them. Remember we mentioned $300,000 in customer savings we have helped clients achieve? A large portion of this was due to our work on load flexibility.
Summary
So, as you can see, being faced with choosing an electricity supplier doesn't have to be a stressful experience. With a little planning, you can feel secure in making an informed and confident choice. The electric industry is looking at a new and innovative future. It will give you the opportunity to customize your energy service and maximize your operations.
Take the initiative, so when that call comes in, you can respond by sending out your previously-prepared RFP and put the ball in their court -- and perhaps take the rest of the week off, or at least make it home for supper.
Chris Vilcsak is President of Solution 105 Consulting Ltd and can be reached at info@solution105.com .ET