If you own a small business in California, chances are
you've already begun to benefit from electricity industry
deregulation, which officially began in the state on March 31.
California, which previously had electricity costs 30 percent to 40
percent higher than the rest of the nation, now gives consumers the
ability to shop around for a power service provider, band together
with other consumers for increased buying power, or, for
residential customers, stay with the same electricity provider and
receive a 10 percent discount on their bills.
As more states jump on the deregulation bandwagon and open their
markets to competition, opportunities to market power and related
services will abound, says Ken Maize, editor of Electricity
Daily, an online journal for the electricity industry. The
potential U.S. retail market is more than $220 billion per year,
says Maize.
So what does it take to break into the wholesale power market?
It helps to have a consumer-friendly selling proposition, as did
Mike Peevey, founder and CEO of New Energy Ventures, a Los Angeles
electricity retailer. Peevey and his partner, Mike Burke, started
New Energy Ventures (NEV) in 1995.
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As an "aggregator"--a power marketer that services the
combined electrical needs of many customers--NEV was in a position
to get deals on electricity on the California Public Utilities
Commission's Power Exchange, a virtual auction house where
investor-owned utility companies compete to sell electricity to
power marketers like NEV. The bill that provided for the
industry's deregulation stipulated a three-and-a-half-year rate
freeze for businesses that use public utilities. Currently, NEV
easily undercuts the prices offered by public utility companies.
NEV may capture only a small percentage of the difference between
the public utility price and the Power Exchange price, but without
the high overhead of maintaining or building transmission lines or
power-generation facilities, its profit margin becomes significant.
NEV estimates it will do nearly $1 billion in sales this year.
Still, says Maize, making money as an aggregator in this brave
new marketplace is harder than it sounds. "It's not going
to be like selling Avon or Amway," he says. "State
utility commissions will continue to regulate the industry, and
they'll require you to know what you're doing, to have a
supply of electricity and to have deep enough pockets to finance
the venture."
Power marketing isn't the only way to make money from
electricity deregulation. Billing, meter-reading, energy
consumption analysis and other services usually handled by public
utilities are also up for grabs.
Although deregulation in California seems to be working--at
least in the commercial and industrial power markets--Maize
believes nationwide electric power deregulation won't happen
any time soon. "There was a time when it looked as if
electrical deregulation was going to happen at the federal level,
and the market was really going to open up," says Maize.
"That has not come to pass. So now you have a piecemeal
approach, usually in states where electricity prices are high and
the existing system doesn't work as well as it
should."
Case in point: To date, 12 states--among them Connecticut,
Nevada and Virginia--have enacted restructuring legislation.
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