Deal Kicks Off Independents’ Electricity Effort
New Energy Ventures, a Pasadena energy marketer, said Tuesday that it has purchased up to $500 million in electrical power from a federal agency for resale in California, the opening shot by independent power companies vying to position themselves in the state’s soon-to-be-deregulated electric power industry.
The announcement came the same day that California’s historic electrical industry deregulation bill, AB 1890, was approved by a conference committee and sent to the full Legislature for a vote, which could come as early as Friday. Passage would put California at the fore of 40 states now in the process of deregulating their electric power industries.
The measure would break the grip of the state’s major utilities on power generation, replacing it with a free market that over time would allow consumers and businesses to make their own deals with the lowest-cost providers of power. The state’s power market would be phased in over five years, beginning in 1998.
Who would benefit from deregulation is being hotly debated. Big business seems a clear winner. Utilities would be reimbursed for an estimated $27 billion in assets such as nuclear power plants and alternative-energy purchase commitments.
The benefits for residential customers are less clear, despite a 10% rate cut promised in 1998. Citing “substantial risks to small customers and questionable rewards,” consumer interest group Toward Utility Rate Normalization withheld support of the bill Tuesday.
The power market that is likely to emerge will be dominated by large buyers and sellers of energy in California, industry observers said. On the one side will be suppliers such as New Energy Ventures. These broker-dealer ventures, many of which include utilities as partners, can lock up supply from around the nation at dependable rates.
On the other side are big industrial users and even large blocks of residential users who will band together to increase their buying power and negotiate lower energy prices. Small consumers, such as single-family residential customers, will have to join coalitions to gain any market advantages.
New Energy Ventures is just one of many power marketing companies now setting up in anticipation of California’s new energy market. The marketers include giants such as Enron of Houston and Duke Power of North Carolina, all eyeing the enormous California energy market filled with consumers tired of paying power rates that are 50% above the national average.
Buying groups are more diverse, with most representing special interests or even social causes. Working Assets, a San Francisco-based public interest group that sells credit cards and long-distance telephone service, with a portion of profits going to charities, plans to organize a “green” power buying group for its 75,000 members.
Eastern Pacific Energy of Los Angeles is lining up mobile home parks and apartment owners to join its power buying group, and School Project for Utility Rate Reductions (SPURR) of Alamo has signed up 170 schools in Northern California for its purchasing group.
“Consumers are going to have to group together. The transaction costs of entering into contracts and doing metering may not make it attractive to the energy provider to go to customers with microscopic loads,” said Tom Thompson, supervisor in the energy branch of the state Public Utilities Commission in San Francisco.
New Energy Ventures was founded in 1995 by former Edison International executive Michael R. Peevey. Investor Tucson Electric Power Co. has an option to buy a 50% stake.
New Energy Ventures has signed 10 agreements to provide power to municipal and private customer groups, including the 10-city Southern California Cities Joint Powers Consortium and the California Retailers Assn. Its deal Tuesday with Bonneville Power Administration of Portland, Ore., is its first power purchase agreement, however. Bonneville is a federal power marketer that sells energy generated at 29 federal dams on the Columbia and Snake rivers and at one nuclear plant.
Peevey said he has lined up 440 megawatts from BPA over five years--enough to provide residential power for all of Long Beach. Peevey said his main market will be large public and private institutional customers, although residential customers would be targeted if grouped together in large enough numbers. He said he is promising customers that he’ll deliver power at 15% to 20% less than current rates.
“You aggregate buyers for the same reason as getting 10 neighbors together to go down to the Ford dealer to buy cars. You’ll get a better deal than if you buy one,” Peevey said.
Not all businesses and consumer groups would immediately be able to negotiate directly with power providers such as New Energy Ventures. That right would be phased in over five years starting in 1998. Until eligible, consumers would buy power from a power exchange, to be set up by the state, that would serve as a spot market.
