Let There Be Light

Why California's electricity problem may leave you in the dark.

“You can expect at least 5 to 10 percent savings through implementation of an enterprise energy management system,” says Gord Lancaster, CFO of Power Measurement. Brian Walshe, of energy consultancy Barrington Energy Partners, says companies need at least 10 percent savings to make a comprehensive energy management program worth the effort. “But 10 percent is very doable, and with advances in technology, it could go as high as 15 percent.” Although implementation costs vary, Lancaster says a typical rule of thumb is that a company must spend 10 percent of its electricity bill to implement an energy management system, with payback in 6 to 12 months.


Marshall Witt, CFO of San Jose­based FedEx subsidiary Viking Freight, says even simple conservation measures produce tangible financial results. “Electricity is not one of our larger costs,” he admits, “but in transportation, margins are slim.” In March, he says, the company’s headquarters reduced its consumption by 20 percent. That’s enough power, says Witt, to run five of his truck terminals for a month.

Viking also participates in “peak shaving”–running generators in its trucking terminals to reduce its utility demand during peak periods. Of course, with five blackouts hitting various truck terminals in the first five months of this year, it is in Viking’s self-interest to help out its struggling utilities. But thanks to time-of-use monitoring by PG&E, Viking also saves the peak price. Time-of-use, rather than average, pricing gives companies more incentive to reduce demand during peak periods. Although such specific pricing signals are still not available in many parts of the country, it is increasingly common for companies to seek market-rate compensation for conservation or on-site generation.

The most extreme example of this strategy was the highly publicized decision by several aluminum companies in the Pacific Northwest to actually shut down their smelters and resell contract power–in some cases for as much as 18 times the original price. Kaiser Aluminum, for example, booked $228 million in power sales in the first quarter of this year.

Likewise, Phoenix-based Phelps Dodge Corp. is considering selling power from the new cogeneration plant that it is building to help shield the mining company from the volatile electricity market in its region. “We do not intend to be in the spot [electricity] market– except as a seller,” CEO J. Steven Whisler told analysts. Although the economics of such a deal would have to include paying idle workers, he said, “we might even get lucky and get two to three days of sales.”

But similar deals are also becoming part of standard market offerings. Select Energy Inc., a subsidiary of Northeast Utilities, allows companies to buy hourly blocks of power for a fixed price, notes information operations manager Jim Grace. If the companies use less power through conservation or on-site generation, they receive a refund that is calculated against a market index. Essentially, they are selling the power back at market price. Although many of Select’s customers–General Electric and International Paper, for example–are still large consumers, that profile is changing, he says.


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