Tap Into The Power Of Technology

Dec. 21, 2004
IT and Web-based tools can help to cut energy bills substantially.

Like any businessman, David McCrae spends a lot of time fretting about expenses. So when the manager of engineering at Slater Steels Corp., Fort Wayne, Ind., began thinking about his companys $4 million annual power bill, a light bulb went off inside his head. "I decided that it would be worthwhile to spend a few hours and a few hundred dollars to explore ways to cut our electric bill," he explains. Yet McCrae never imagined that he had hit the equivalent of the electricity lottery. After clicking his way through several Web sites, he wound up at www.energyworld.com, operated by Peak Network Communications LLP, Englewood, Colo. There, he downloaded $600 worth of pricing reports, pored over the information, and quickly discovered that his utility was charging rates ranging from 0.3 cents per kilowatt hour to 84 cents. Unfortunately, he wasnt at the low end of the cost scale. McCrae promptly met with officials at the utility and renegotiated his companys rates. And today Slater Steels has slashed its electric bill by nearly 50%. "Without using the Web and having the software available to examine the pricing, we would still be paying exorbitant rates," he explains. For Slater, an integrated steelmaker that uses an electric furnace and has revenues of $180 million and net income of $5 million, McCraes efforts paid a handsome dividend. A growing number of companies are plugging into IT and Web-based tools. Theyre using hardware and software to better understand the competitive landscape and impending deregulation. And utilities, too, are discovering that its essential to turn to computers and the Internet to better understand their costs structures, industry trends, and how to compete in a rapidly changing environment. In an industry where change has traditionally occurred at the speed of a covered wagon, participants are now buckling themselves in for a wild ride through cyberspace. "As the market moves toward a model that relies on independent marketers, power producers, and load aggregators, information technology is driving enormous change. The Internet is at the center of the trend," says Larry A. Winter, a partner in the utility-industry practice in Andersen Consultings Phoenix office. That change is rippling through almost every corner of the industry. "Technology is changing the way business is transacted. Its altering the stakes for everyone involved," adds Manoj Desai, an energy-services marketing manager at IBM Global Services in Baltimore. Peaks Web site is a prime example of the way the marketplace is evolving. Although the government mandates that electric utilities release data about pricing relationships with customers, aggregating and sifting through the highly coded information is next to impossible. "Its not far removed from rocket science in terms of complexity," McCrae points out. But www.energyworld.com offers detailed reports about specific utilities -- from municipal operators to giant publicly owned utilities. The contractual prices, as McCrae discovered, can be used as competitive intelligence. Although his company is still bound to Columbus-based American Electric Power Co. Inc. (AEP) because deregulation hasnt yet occurred in the region, sorting through the reports gave him the leverage to negotiate the lower price. According to McCrae, officials at the utility were surprised that Slater Steels had collected the information, "but they recognized that were an excellent customer -- the 26th largest electrical consumer in Indiana -- and they recognized the value of retaining us as a long-term customer." At Peaks Web site, a user is greeted with a home page that offers news, industry directories, and assorted discussion groups. That helps attract people to the site on a regular basis. But the real action is the sites "Data Central," which serves up data on U.S. electrical exchanges, purchases, sales, wheeling, and more. Its possible to view data by year and then drill down to individual states and utilities. When a report summary appears on the Web browser, its simply a matter of placing the order, and Peak then sends the full report by e-mail or fax. Bill Luke, project manager at www.energyworld.com, says the site helps fill an information gap that has long existed. "Someone can find out how much energy companies are paying for power and what price theyre turning around and selling it at. Sophisticated corporate users are beginning to realize how much clout they have if theyre armed with the appropriate pricing information," he explains. The site contains data on every utility, municipal producer, cooperative, and independent producer in the U.S. At present, the site receives about 12,000 hits each day. The World Wide Web also is bringing together buyers and sellers. North American Power, a Maynard, Mass., firm that operates www.energyagent.com, now offers the World Wide Retail Energy Exchange (REX). It allows electronic commerce to take place through the Internet. Companies post their energy needs within the REX system, and suppliers competitively bid to fill those needs online. The system uses real-time price quotes and bids, and allows a firm to fill a request for proposal faster and more efficiently than ever before. Instead of days, the process can take place in minutes or hours. Atlanta-based Continental Power Exchange operates a similar Web site (www.cpex.com). "The traditional system is incredibly inefficient," says John Gaus, president of North American Power. "The Web is a natural tool for bringing people together and providing greater efficiencies." The Web site, which has been available since January, is currently handling about 300 transactions per month. Participating suppliers include PG&E Energy Services, Duke Energy Corp., Agway Energy Services, EnerZ, Colonial Energy, and Iroquois Energy. "The application is designed to give suppliers instant access to new customers while allowing efficient bulk transactions without the traditional sales-and-marketing costs," says Gaus. REX has consistently cut costs for buyers by 20% to 30%, he notes. Andersens Winter says the move toward deregulation is creating new opportunities, but the technology is often spearheading the change. "Deregulation requires efficient software and technology to take place, and the Web is the logical tool to use. Just as its easy to trade stocks on the Web, its now relatively simple to exchange energy," he says. Not only do Web sites allow real-time e-commerce to take place anytime and from anywhere, they eliminate the need for constant software updates as well as dealing with different platforms and operating systems. One of the nations first independent service operators, ISO New England, is a result of Federal Energy Regulatory Commission order number 888, which requires owners of transmission resources to provide all energy companies with fair pricing and equal access to transmission capacity. But the Web-based system is designed to create efficiencies that will help participants compete more effectively in a deregulated environment. ISO New Englands system receives bids for energy and related services from participating organizations and then uses the bids to schedule and control energy resources in New England. Among the functions offered: bidding, contracts, metering, billing, settlement, and publishing of pricing and trading information. In all, nearly 130 participants -- public and private electric utilities, independent power producers, power marketers, power brokers, and load aggregators -- will use the system when it becomes fully operational in the fall. Another benefit is that the system can generate tables and data on the fly. Users can click through pages and view relevant information from Netscape Navigator or Microsoft Internet Explorer and make choices, and the system automatically will put together deals. "It would still be possible to conduct transactions without such as system," says Jamshid Asnan, a technology manager at ISO New England. "But it would have been less efficient and more costly. In an environment thats moving toward deregulation, the bottom line matters more than ever before." The same technology is changing the electricity-transmission business. Operators of high-voltage power lines can now bid for system capacity in much the same way a trucking company might bid for a contract to transport a product to market. That is allowing entirely new players to enter the business and is changing the dynamics among existing participants. Systems such as ENX Oasis (www.enx.com) from Siemens AG and IBM are ensuring that "deals are no longer based on the buddy system and who youre used to doing business with. Theyre based on who has the available resources and the price they can offer," says IBMs Desai. Oasis, which stands for Open Access Same-time Information System, lets those seeking transmission services place queries about line availability directly from their Web browsers. For example, a company might need a transmission line between noon and 4 p.m., and once an engineer places a request, he or she can view results based on real-time information in the database. If the asking price is acceptable, the engineer can submit an order, and if the pricing or availability doesnt work, the engineer can post the price he or she is willing to pay online and find out if anyone is interested. Companies such as Florida Power & Light Co., Tampa Electric Co., and Pacific Gas & Electric Co. have already used the 24x7 system successfully. Not all the action is on the Web, however. Many utilities are looking inward to reengineer processes and find ways to become more efficient and competitive. For instance, AEP has developed high-level tools that allow managers and others to understand processes far more effectively. Using Web-based software, an Oracle database, and a company intranet, AEP is eliminating static spreadsheet reports and replacing them with dynamic Web pages that let managers and others benchmark and analyze costs, performance, safety, and a litany of other issues. The ability to view and share consistent data will help the utility realize internal goals, notes Scott Weaver, director of business planning and financial management within the power-generation group at AEP. In the electricity business these days, deregulation is sparking new ideas and approaches that will fuel even greater change in the future. "The ultimate promise of deregulation cannot be realized without truly open competition," says IBMs Desai. "And open competition cannot take place without the right technology. . . . The industry is beginning to understand what it takes to succeed in this new marketplace."

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