Power Shopping

Sept. 1, 2000
Schools and universities should consider many factors when selecting an energy service provider.

Schools and universities should consider many factors when selecting an energy service provider.

Deregulation and competition in electricity markets are causing profound changes in the procurement and use of energy. Smart schools and universities who do their homework on energy service providers (ESPs) will be best prepared to save money as soon as their states allow retail energy competition.

Based on experiences in deregulated states where electricity prices are high, schools and universities may expect an immediate savings of five to 10 percent.

A key factor in choosing an ESP, of course, is the price of energy. Before taking any action, be sure your institution has compared the offerings in your area with the rate offered by the incumbent utility. The savings must be measured against the total utility bill, as well as the energy portion of the bill. Also, before you begin an ESP selection process, be certain that your school or university will see a payback substantial enough to justify the labor and expenses.

Beyond price, you should consider a number of other factors: selection criteria preparation, prequalification, electricity rate offering selection, and terms and conditions.

Public and large institutions may prefer a formal request-for-proposal (RFP) bidding process. Smaller, private schools and colleges may elect to participate in buying groups of similar institutions, or informally negotiate the best deal with a few prospective ESPs.

KNOW WHAT YOU NEED In either case, you should base the process on established internal requirements that an ESP will have to meet. If you choose the RFP route, consider hiring an independent consultant - not affiliated with a power marketer - to assist you. If a buying group is an attractive option, make sure you check with other schools and colleges that have used the service, and that the chosen ESP of the buying group addresses your interests and concerns.

First, determine if there should be guidelines for tradeoffs between the desired level of reliable service versus the tolerable price risks. (See sidebar at left for list of variables.) Then, prioritize these requirements before you begin the decisionmaking.

Your institution also will need to prepare the type of information that an ESP will be seeking - in particular, the load profile of your buildings in each season. At the very least, you'll need the electric utility bills for the last 12 to 24 months. For larger institutions, 15-minute interval data of the utility revenue meter forthe entire year, along with a few load profile charts, is ideal. The more precise your load- profile information, the better equipped the ESP will be in providing an accurate and reasonable price quote.

Those schools and universities interested in interruptible or market-based pricing services will need a more in-depth understanding about how the facility uses energy. For example, detailed submetered load-profile information about each of the critical loads, areas and tenants in the facilities will enable facility managers to make informed decisions about controlling discretionary loads and about the tolerance levels of pricing risks. Keep in mind throughout this process that knowledge and information is power: the more you know about your buildings and the rules of deregulation, the better the deal you will get from an ESP.

THE SELECTION PROCESS To ensure adequate prequalification, check if the ESP meets your state's registration or licensing requirements. Find out if they have an office nearby, and determine if they have sufficient experience, financial stability and a long-term commitment to the business. Larger institutions may prefer an ESP that is more accustomed to working with larger, more demanding schools and universities. Ask for a list of an ESP's local customers that are similar to your school or university.

Comparing electric rate options can be complex. Traditional utility rates for large energy users generally fall into three main categories:

- Fixed price per unit of energy - normally 3 to 10 cents per kilowatt hour, with an associated charge at times of peak demand.

- Time-of-use rates - where there are two sets of fixed prices for energy and demand during peak and off-peak hours, with seasonal adjustment.

- Interruptible rates - where the customer agrees to turn off a set amount of load on short notice from the utility in exchange for discounted rates.

Under deregulation, ESPs will be offering up a dizzying array of additional market-based rates. Some will be indexed to futures and options commodity trading on the New York Mercantile Exchange with a monthly price per unit of energy. Others will be tied to the Power Exchange or other similar power pools that essentially provide hour-by-hour real-time spot prices per unit of energy.

WRITE IT DOWN Be sure that the ESP's share of transmission and other handling charges related to delivering energy to you are included in the quoted energy price. To avoid unexpected charges, write the contract language clearly to ensure that any unspecified charges are the responsibility of the ESP. Note that you will continue to be charged by the incumbent utility for all other transmission- and distribution-related fees based on the tariff filed with your public utility commission.

If you choose to pursue market-based pricing options, you may need an adviser to help you navigate through the price comparisons and the ESPs' alternative rate options. Ultimately, to determine your institution's exact percentage of energy savings, you will want to make a total, finite comparison between the bill from the ESP and the bill that you would have received from the incumbent utility.

In addition to energy prices, there can be other important energy information services that could be significant to your school or university. For example, can the ESP provide regular load-profile or energy-usage reports? Will they install the new "smart meters" that capture key energy usage and power-quality information? Can your facility's building-management system computer read the meters directly when needed? What kind of invoice and payment options do they offer? Is the Electronic Data Interexchange (EDI) option important to your institution? What promotional rates do they offer? Is there a bonus for signing up? Ask every question that comes from your research (see sidebar at left).

Another rule: Don't buy various energy-services offerings bundled with the energy commodity. Always separate your energy commodity purchase contract from your energy-services contract. In this way, you will know exactly what you are getting from each of the contracts and that you are getting the best deal and the best supplier from each of them.

Read carefully the fine print of the terms-and-conditions section of the contract. If your institution is large enough, you may be able to write your own contract and then let the ESPs respond to it, but most schools will have to begin with the standard contract offered by an ESP.

The duration and flexibility of the contract itself are vital. Do you prefer an annual or longer-term contract? Watch for automatic renewal clauses to ensure that the language meets your requirements. What about an escape clause? Will you be able to get out of the contract easily if you become dissatisfied with their service? Is there a penalty for terminating the contract early?

Also, beware of the clause on force majeure, or act of God. Ask about the ESP's share of responsibility if they cannot supply power to your buildings on the hottest day of the year. What if the ESP doesn't want to pay top dollar for energy in the spot market, or if the transmission lines break down between the power plant and your institution? When the incumbent utility charges you a hefty fee for "backup" service as a result of supplying power to your building on that high-priced day, who pays the bill? Ask your colleagues in other institutions for their experience. Consult professional associations for advice on contract negotiations. Involve your legal counsel early, and hold regular, internal legal reviews of the contract.

The list of variables in determining guidelines for tradeoffs between the desired level of reliable service versus the tolerable price risks can be extensive. Here are a few examples (be sure to prioritize these factors before beginning the ESP selection process):

- The fixed price for firm service.

- The discounted price for interruptible service.

- The market-based price with or without a cap.

- The origin/types of fuels used for power generation.

- Energy use monitoring and reporting.

- User access to realtime meter data.

- Flexible billing cycle designation.

- EDI invoicing/payment options.

Here's a simple checklist of questions and criteria schools should consider when navigating the ESP selection process.

Prequalification - Is the ESP registered/licensed by the state?

- Does it have large energy users as a major focus?

- Does it have a local user reference list available?

- How many years has it been in the ESP business?

- Does it have staying power in the business?

Energy (electricity) offerings - Fixed price - cents per kilowatt hour

- Time-of-use rate

- Interruptible rate

- Indexed to New York Mercantile Exchange price (+/-%)

- PX/Power pool price (+/- %)

- Realtime pricing (RTP) rate

- Other useful rate options

- Transportation fees included

- Other hidden charges

- Percentage saving vs. current total UDC bill

- New "interval meter" option

- Useful alternative billing/reporting options

- Useful alternative payment options

- Available incentives or bonus

- Important value-added services

Reasonable terms and conditions - Length of contract

- Renewal option

- Termination/exit clauses

- Penalty for switching prior to term end

- Force Majeure/act of God clauses

- Other unusual conditions

Other Service Information - Contact name

- Contact phone number

- Customer service hours

- Customer service phone number

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