As deregulation looms, facilities prepare for its arrival by upgrading and streamlining systems

Dale Barrette, director of operations for Okeechobee County Schools in Central Florida, has concerns about how deregulation can save his organization money. And he's not alone.
Many commercial and institutional facilities today seem to be in the dark about the status of electric industry deregulation. Their uncertainties range from structuring a contract and selecting a provider to determining - even in the most general sense - the bottom-line benefits of deregulation that facilities can count on.
And given this summer's power problems in California, Barrette is even less sure that an outside utility or even his current utility, Florida Power and Light, will be able to provide his facilities with reliable power. The loss of money he can deal with, but the loss of power he can't. "Of course, there are no guarantees right now about any of this," Barrette says. "Do we stand pat and go with what we know? I don't know. We'll have to wait and see.

Deregulation for most commercial and institutional facilities has amounted to a waiting game. But it seems to be only a matter of time until deregulation begins to roll into facilities on a larger scale. Many managers are using this time to their advantage, trying to determine the shape and scope of deregulation's benefits for their facilities and figuring out how to best to prepare for them.

The state of deregulation

So far, deregulation has raised more questions than it has answered, at least based on recent experiences in California. The state's deregulation plans were tested this summer when demand outstripped supply, pushing the electricity infrastructure to its limits. Rates skyrocketed, and rolling brown outs have shaken public officials' confidence in deregulation, causing the state legislature to re-regulate the industry. Experts nationwide now wonder whether any state is ready for deregulation yet.
While the peak in rates resonated most with residential and small-business rate payers, the questions of reliability hit home with institutional and commercial users. In fact, while many managers expect rate increases, the possibility of losing power or losing quality power truly concerns them.
"They can set up on a computer and tell how things are supposed to happen, but they can't set one up to tell me what is going to happen when I throw a switch," Barrette says.
Preparing for possibility of power quality drops and unreliability means taking a hard look at who has provided power infrastructure service in the past and determining who might do that in the future.
Reliability problems can result from a number of areas inside and outside of facilities, including power transmission and distribution equipment. Some small or some urban facilities, for instance, don't own their electrical distribution system; the local utility does.
Service of the equipment certainly could be a problem when different parties own the generation, transmission and distribution equipment, says Frank Brewer, assistant vice president of facilities management at the University of Maryland at College Park. "This now puts facilities one more step removed from controlling quality and reliability," Brewer says.
Bill McMullen director of maintenance for central Piedmont Community College in North Carolina, agrees. What guarantees does a facility have that once it switches utilities or goes with a broker, reliable service will result, he asks.
"When we're buying power from Tennessee Valley Authority or Carolina Power and Light, what incentive would our local utility have to provide good service?" McMullen says. "It's these value-added things that have us second-guessing whether we would even switch providers.

And there is the fact that deregulation is new and will present additional problems. Even in Pennsylvania, a state that some hold up as a model of deregulation, inexperience is presenting problems.
Kurt Bresser, energy manager for Temple University in Philadelphia, says he shopped around for power but ultimately stayed with his current provider. The reason? The threat of a 30 percent stranded-cost bill and higher electricity prices.
"Prices seem high because many suppliers are new to the game, and there are no goodpricing models to follow," he says. "There are also complex rules and changing regulations for transmitting power. On top of that, prices go to needle peaks - a given price might be 2 cents and go to $1 per kilowatt-house on a hot day".

Going with another utility still meant paying 30 percent of the electric bill to the current provider to cover stranded costs. Instead, the university negotiated a rate cap with its current provider, freezing the rates at a level prior to deregulation.

What managers can do

Managers working to keep their facilities ahead of the deregulation curve are undertaking a number of strategies.
For Bresser, researching offers from other electricity providers was critical to developing an interim plan for the university. With an electric load of 18 megawatts for its main campus and a little less than that for another campus, Temple is not going to attract a lot of attention from PECO Energy Company, Temple's current utility provider, or from any other utility, he says.
So the university joined a state organization made up of some large industrial customers that represent significant power demand. As a group, he says, the organization can make some legislators and utilities listen to their interests. But the university's membership in the organization is more than an attempt to join a lobbying effort. Bresser says the deregulation issue is complex, so activities such as joining groups and networking are critical to under- standing issues. They offer opportunities to discuss is- sues and get relevant information.
"Shaping deregulation is going to take a lot of work," Bresser says. "If you're not involved, then you have no right to complain."

Another top priority during the preparation phase is determining a facility's electric load profile and working to cut energy use.
Steve Thompson is vice president of maintenance and energy for Saks Inc., which owns 35 8 retail stores across the country, including hundreds of department stores. His facilities' problem is that no store by itself is big enough to draw much attention, but the company as a whole represents a sizable energy customer. As a result, he is watching deregulation very closely.
"At this point, I am as confused as others as to what it will all mean, but we're doing our best to prepare for fluctuating costs," Thompson says.
The key for Thompson so far is controlling energy use in his stores. Besides energy retrofits of the lighting, HVAC and building envelope systems, the company is installing energy data loggers in nearly all the stores and linking everything to a central control station in Jackson, Miss. While the installations will not be complete until year's end, most of the stores already are linked, and the energy management system is providing improved control of the stores' energy use. Thompson's headquarters' maintenance and engineering staff can document loads for all the stores and make adjustments to their systems from Jackson.

"If deregulation spreads across the whole country, we'll be prepared for it," he says.
Central Piedmont's McMullen says reducing consump- tion may be the only thing managers can do now. "If rates jump up - and I haven't seen anything that suggests they won't - at least we've done what we can," he says. "What else can we do?"

The strategies and tactics managers can implement to prepare for deregulation are many of the same things they should have been doing over the last 10 years, says Pieter van der Have, director of maintenance for the University of Utah in Salt Lake City. "We've spent $ 10 million on energy retrofits and negotiated for another $ 10 million in projects," van der Have says. "We've built a chiller plant with the savings. All of this could benefit us under deregulation. But we don't have to wait for that, since its benefiting us now."

The on-site option

If there is a trend developing because of deregulation, it might be self-generation, also called on-site power, says Tom Black, manager of business development at SFT Consulting Engineers in Toledo, Ohio.
"In Ohio at least, because most people are guessing that power is going to cost them more, some are studying the feasibility of co-gen and on- site power," Black says.
Bresser says Temple is pursuing on-site power, using natural-gas generators and accepting an interruptible rate. But, he says, managers must beware of a downside to this strategy, especially on urban campuses. Because many urban areas have restrictions on air emissions, some generators might be permitted only for emergency use, and then only for a few hours in a year. Self- generators can run their generators 2OO- 300 hours a year, he says, and as a result, it might be difficult to get the permit. "Deregulationis going to mean a lot of work for facilities departments," McMullen says. "Utilities and brokers aren't necessarily going to do what's best for you. If you're not at the most advantageous rate, the utility is going to change it for you. You have to find out the options."

All together now? Maybe

Even though North Carolina is at least two years from deregulation, Bill McMullen, director of maintenance for Central Piedmont Community College, says a number of facilities are forming buying groups in the hopes that the larger group would have the power to buy electricity at a lower rate.
The college has considered the strategy, despite the fact that it is the 10th largest consumer in North Carolina.
"For us, it's an option, but you can see the writing on the wall for small physical plants," he says. "They have to aggregate. It would seem to make sense."

Dale Barrette, director of operations for Okeechobee County Schools in central Florida, thinks aggregation makes sense. He is considering joining a group of coun- ties to buy power. He expresses what seems to be the common wisdom of aggregation that buying power is like buying insurance - namely, the larger the group, the cheaper the rate.
But that strategy may just be a myth when it comes to deregulation.
Kurt Bresser, energy manager for Temple University, considered aggregation an option. Then he started doing some research on his own. After dealing with 40 different suppliers, none could or would provide any special rate package irrespective of his college's own electric use.
"Every individual customer is rated on their load factor within the group," he says. "All aggregation seems to do for us is level the base price for the group. I'm not saying it shouldn't be true [that aggregation should lower prices]. In reality it doesn't seem so. "The buyer, after all, buys wholesale blocks of power based on the size of the group. Their profit and loss depends on the cost ofthose wholesale blocks ofpower, but they're not passing any savings through."

David Kozlowski, senior editor of Maintenance Solutions. This article appeared previously in the September issue of Maintenance Solutions.



First published October 2000