U.S. Gas Electric Tel - money saving services (original) (raw)

Deregulation Woes - United States

September 4, 2007

In the mind of the average American consumer, the deregulation of the electricity market in the United States has been a bust. In those states and service territories wherein electric supplies have been deregulated, consumers have experienced confusion, a lack of real competition and most importantly, higher prices. As such, many states who previously deregulated their electricity markets are rethinking their decision questioning whether a return of the traditional marketplace is better for the consumer. Additionally, those states who have retail deregulation pending have taken action to delay, if not cancel, the entire process.

Take for example the state of Illinois. Back in 1997, with much fanfare, the state put into place a deregulation plan wherein incumbent utility rates were frozen with such rate caps scheduled to come off in ten years. For ten years, no matter the ancillary costs of generation (i.e., fuel, labor, etc.), consumers paid no higher than those prices set in 1997. However, once the rate caps where lifted last month, electricity prices skyrocketed between 25 to 50 percent depending upon your service territory and load profile. Many state leaders, rather than looking at the flaws in the original plan, quickly blamed the utility companies citing corporate greed and an unsound auction process. They have called for a return to the 1997 price cap scheme ignoring the consequences as the two biggest utilities cite that such action would only result in their bankruptcy.

The Illinois situation is not unique as many other states that had rolled out deregulation plans experienced similar results once price caps were lifted. These states include California, New Jersey, and Maryland to name a few. In light of the troubles experienced in other states, Virginia is now pulling back its deregulation ambitions. In some instances local politicos express shock that the original plan did not work and insist it must have been undermined by a group of greedy suppliers (a la Enron) who are more interested in exploiting legal loopholes for their own financial gain than providing real savings and benefits to the consuming public. Others say that the electricity market needs to be regulated and any competitive market for this commodity will only increase prices for those who can least afford it.

It seems to us that the culprit is having unreal expectations in a real world. You cannot expect that by just simply “freezing” rates for an extended period, prices will automatically drop once market base rates are introduced. Frozen rates or price caps “chill” deregulated markets as suppliers find it next to impossible to compete against incumbent utilities thus arresting the competitive growth of that particular market. In addition, incumbent utilities are not immune from inflationary forces as they generate electricity so it is only natural that huge increases would be incurred once price caps are lifted.

In our view, should we wish to get serious about electricity deregulation, we need to put aside the politics and focus on a plan that works. Yes, consumers need to be protected from unscrupulous suppliers, but creating a fantasy land of price caps only hurts them in the long run.

Jay Draiman, Energy Analyst

The objective of deregulation is to offer energy customers greater choice, both among suppliers and services. Ideally, that will result in increased efficiency and dollar savings. Under competition, companies have to find innovative ways to attract customers such as cutting costs and dropping prices. Deregulation is also expected to increase the reliability of energy supplies because deregulating industries attract new investment capital that can be used to expand and improve their infrastructure. Additionally, deregulating industries typically see an increase in the numbers of companies offering the product or service; as a consequence, deregulation may increase the number of back-up suppliers if one company experiences problems. Deregulation also promotes new technology. Companies have more incentive to develop and introduce innovations because they can profit from those that succeed. For more information about deregulation in energy markets, visit one of the following links: Electricity industry restructuring Gas industry restructuring

Myth: Deregulation promotes competition.

Fact: Deregulated competition eventually leads to monopolies.

Summary

Deregulation only promotes competition in the early stages. In the latter stages it actually eliminates competition as rivals are driven out of business. Owners feel the need to cut every corner possible -- and both workers and consumers pay the price. And what is the result of all this perpetual elimination of business rivals? A monopoly, of course.

Argument

The many hymns to deregulation usually describe the success stories that occur immediately after deregulation. This is always a period of price-slashing and better service as companies compete to attract more customers. But there is always more to the story, which often takes years to play out. The latter stages of deregulation feature generally look like this:

• There is a perpetual elimination of the weakest companies, even when only strong ones are left.
• During the heated competition phase, the name of the game is not prosperity, but survival.
• Corporations become desperate to cut costs wherever possible to maximize profits.
• Consumer and worker safeguards are reduced or eliminated.
• Environmental safeguards are reduced or eliminated.
• Convenience and comfort are reduced or eliminated.
• Wages are reduced.
• Workers are laid off by the thousands.
• Production and workloads are pushed to the limit, often at the risk of life and limb.
• Entire markets -- for example, rural areas -- are dropped if they are deemed low-profit.
• In the final stages, a monopoly or oligopoly emerges, after which prices are raised, services dropped, quality reduced, and corruption and abuses of power become commonplace.
• Workers from failed companies continue working in their fields by either joining the few surviving giants (usually at lower wages) or working alone (always at lower wages). In other words, a monopoly or oligopoly will dominate the market, but hundreds of nickel-and-dime operations may work around the edges. Of course, competition, corporate restructuring and eliminating inefficiency are all necessary to keep an economy healthy. A moderated meritocracy allows competition to thrive right up until the point where it becomes destructive, and then it steps in to prevent trouble. The advantage of such a system is that competition becomes sustainable. It is a supreme irony of unrestricted meritocracies that what starts out as a wide open field of competition sooner or later winds up as no competition at all.

We have already described how deregulation affected the airline industry. After a brief period in which new airlines formed to compete for customers, there was a shake-out. To cut costs, airlines began paring back their maintenance and safety crews, which outraged the flying public. Since 1978, a dozen airlines have merged or gone out of business. Some 50,000 employees lost their jobs. Now that a few majors exist, air service is being dropped to 130 smaller communities, many others are served by only one airline, and air fares are climbing faster than the planes themselves. (1)

After the trucking industry was deregulated in 1980, truckers ran their trucks without maintenance until they became road hazards. More than 100 companies have gone out of business since then, and 150,000 truckers at those companies have lost their jobs. The surviving majors hired them back, but only after cutting their wages. At least 350,000 truckers are now private owner/operators, which are not reflected in government trucking statistics; they make even less than their corporate counterparts. (2)

In 1982, Savings and Loan lobbyists bribed Congress to quietly deregulate the industry. In effect, Congress promised to cover any losses if S&Ls made bad investments with their customer's savings, but also promised not to regulate or oversee these investments. Industry experts call this arrangement "moral hazard," because it tempts investors to abandon their normally cautious, conservative investments and make high-risk, high-return gambles instead. Not surprisingly, fraud and abuse soon ran rampant in any institution that called itself an S&L. Investments turned sour; to cover their losses, the culprits committed even more sins. Charles Keating was caught attempting to bribe five U.S. Senators to bail him out of trouble. To date, about 650

S&Ls have gone under, and another 400 are threatening to. The final bill to the taxpayers: half a trillion dollars.

With amazing audacity, Congress then set out to deregulate the banking industry.

After the cable television industry was deregulated in 1984, prices soared, quality of programming plummeted, and cable systems began selling their channels in indivisible blocs that prevented subscribers from voting with their dollars. From 1986 to 1990, the cost of basic service rose 56 percent -- twice the rate of inflation. (3) The problem? Growing monopolization, at several levels. There are now 11,000 cable systems across the nation, almost all of them exercising a local monopoly over their municipal region. They in turn are controlled by a handful of national companies. By far the most dominant is the ever-expanding TCI, which is a gatekeeper over national programming. Its owner, John Malone, owns all or part of 25 national or regional cable channels, including Turner Broadcasting. (4) Because there is little or no competition, cable programmers search for the cheapest shows to produce. Quality of programming has sunk to network TV levels. It seems that each year, Congress passes yet another cable deregulation bill. Every single one has been touted to "open competition" and "benefit the consumer." But the concentration of power in the cable industry keeps getting worse, not better.

The deregulation of cable is only a small part of what is happening to the media in general. In 1983, Ben Bagdikian published The Media Monopoly, which warned that continuing deregulation of the media under Reagan's FCC was allowing the media to be bought and controlled by an ever-shrinking number of corporate owners. Once called "alarmist," the book is now considered a classic, because all its predictions have come true. By 1992, the number of corporations controlling the media had fallen from 50 to 20, and more media mergers are inevitable. ABC is controlled by Disney, NBC by General Electric, CBS by Westinghouse -- and all these parent companies are renowned for their conservative political activism. Most cities have become one-newspaper towns, with giant companies like Gannett and Knight-Ridder buying every paper in sight. Once a newspaper has been taken over by one of these giants, the same things happen: to maximize profits, editors lay off journalists, reduce local stories, rely more heavily on national news wires, publish more sex and violence, and increase their advertising. The drop in quality is so great that even Gannett's CEO admitted his papers were journalistically "embarrassing." (5) Almost every year, Congress deregulates the media still further, even as dizzying new mergers make headlines. The 1996 Telecommunications Act became notorious for censoring sexual content on the Internet, but perhaps even more insidious was its massive deregulation of the media. By the time information has become centralized in this country, we will have finally abandoned the ideal of a free press.

Deregulation in the telephone and transportation industries have brought

different results to different sectors of the nation. Companies have dropped routes and services to poor communities, or only offered them by raising prices exorbitantly. Senator Byron Dorgan (D-North Dakota) said as early as 1983: "There have been some benefits from deregulation, but they have gone largely to population centers, while the costs have gone to rural areas." (6) Long distance telephone rates fell 38 percent in five years, but about three-fourths of the calls were routed through 18 major cities; for the rest of the nation, local service climbed 50 to 60 percent. (7)

Labor unions also suffered heavily from deregulation. In 1986, Alfred Kahn, an architect of deregulation under Carter, admitted that 3 million union members in airlines, telecommunications, trucking, bus transportation and other industries had taken a severe blow after deregulation. (8) On the other end of the spectrum, surveys in the late 80s showed that businessmen gave only qualified support for the era's deregulation. For example, although they enjoyed the lower air fares of their business trips, they were troubled over airline delays, loss of routes, long reservation requirements and air safety reductions. (9)

To be sure, some regulation in the past has been ham-handed and ill-conceived. But this means it should be improved, not eliminated completely. A good analogy is that of a referee who makes a few bad calls in football game. The solution is to find better referees -- not throw them out completely.

History of US gas market deregulation

Natural Gas—Deregulation is Lowering Prices for Many Consumers

Until only 15 years ago, the structure of the natural gas industry was fairly simple. Natural gas producers explored for and produced natural gas and sold that gas to interstate pipeline companies. The pipeline companies transported the gas across the country and sold most of it to local natural gas utilities. The utilities then resold the gas to customers without markup; they earned their profit delivering the gas to customers and servicing their accounts. The federal government regulated the price producers could charge the interstate pipelines and the price pipelines could charge utilities. State regulatory commissions regulated the price that natural gas utilities could charge their customers.

Today, because of deregulation, the structure of the natural gas industry has changed dramatically. Many consumers now buy their gas at lower cost directly from producers or natural gas marketers and contract with the pipelines and utilities to deliver the gas to them. But, having a choice for the first time can be bit confusing.

What is deregulation and when did it begin in the natural gas industry?
Deregulation began in the natural gas industry during the 1980s, when the Federal Energy Regulatory Commission (FERC), which regulates the nation's interstate pipelines, took steps to ensure that natural gas customers, including utilities, could buy gas at an unregulated price directly from producers. FERC ordered the pipelines to "unbundle" the services they had previously offered as a package—gas sales, transportation and storage—and sell them separately. State commissions followed the same strategy. That meant that for the first time, natural gas customers had the power to choose their own supplier rather than buy gas from their local gas utility, and pay the pipelines and gas utility only to transport the gas to them.

Over the last 10 years, a growing number of natural gas customers have had the opportunity to purchase "unbundled" natural gas service. Today, almost all of the nation's large-volume customers—including electric-generating facilities and manufacturing plants—have the option to choose a natural gas supplier other than their local utility. A growing number of commercial customers, such as hospitals and restaurants, also have a choice of their natural gas supplier.

Where does Nicor stand on customer choice?
Nicor supports customer choice and believes all customers should be able to choose their natural gas supplier. In fact, today, most of Nicor Gas' industrial customers buy some or all of their natural gas supplies from third-party suppliers. To make choice economically attractive to even more customers, in January 1998 Nicor Gas launched a three-year customer choice pilot program called Customer Select, which allows eligible commercial and industrial customers and single-family residential customers to choose their own gas supplier. For those customers in the program, Nicor Gas continues to deliver the natural gas, provide for the safety and maintenance of its pipeline system, and read customer meters.

Nicor Gas has encouraged all eligible customers to participate in Customer Select. Pilot programs like this one ultimately will help provide all Illinois natural gas consumers with new alternatives. They will also help natural gas utilities like Nicor Gas understand customers' needs and preferences as the utility industry becomes more competitive.

Who are these nonutility natural gas suppliers?
Generally, they are nonregulated companies that buy natural gas from producers and then sell it to local utility customers. They usually work with the local natural gas utility to deliver the gas to the customer. The customer may be an individual or a group, such as a housing development or school district.

Some of these nonregulated natural gas suppliers are national players; others are regional or local. Many natural gas utilities have established separate marketing affiliates, which are unregulated. Nicor's marketing affiliate is Nicor Energy. Nicor Energy is a joint venture between Nicor and Houston-based Dynegy Corporation, one of the nation's premier wholesale energy marketers. It was formed in mid-1997 to offer a variety of energy services, including natural gas and electricity, to consumers throughout the Midwest. Nicor Energy is participating not only in Nicor Gas' Customer Select program, but also in pilots in the Chicago area and northern Indiana.

How much money are customers likely to save?
It's impossible to predict whether or not customers will save on actual gas costs. Savings, if any, will depend on the volume of gas a customer uses, the particular supplier offer selected, and even the weather during the time the customer is enrolled.

Will I have to change energy companies?
No. Customers will have the option of continuing to have your local natural gas utility supply the gas for you or choosing from a number of energy suppliers who may contact you directly. No matter which option you choose, your local utility will continue to deliver the gas to you through its distribution system.

Who can I contact if I have questions about customer choice and how it will affect me?
When you have a choice, Nicor wants you to understand all your options. For more information about deregulation and customer choice, please e-mail or call us at 1 888 Nicor4u (1 888 642-6748).

YJ DRAIMAN dba U.S. GAS & TELECOM

847-274-3100 - email: renewableenergy2@msn.com

THE DEREGULATION OF THE NATURAL GAS INDUSTRY

AND OTHER UTILITIES

In the mid 1980's the Federal Government deregulated the Natural Gas Industry in a similar manner to the deregulation of the telephone industry fifteen years prior.

Subsequently, many independent companies started marketing and transporting natural gas. At the onset, many end-users were skeptical. As time went on many large and small end-users subscribed to a transportation gas program. With such a program the Supplier delivers gas to the local distributing company (LDC) who in turn delivers the gas to the end-user with charges for the meter and deliveries only. Many end-users saved 20-30% on the cost of natural gas and in many cases were able to eliminate the payment of tax on their purchase.

In the late 1980's the local public utility commission granted some LDC’s the right to charge special tariffs to end-users who subscribe to gas transportation. Thereafter some small end-users had to withdraw from the program because the new tariffs made the program less beneficial economically for end-users with low annual gas consumption.

As new tariffs went into effect, end-users had to choose which program would be appropriate for them: full back-up or zero to variable back-up which saved more money but had the risk of penalty for non-delivery or under-delivery of gas during winter periods. End-users also had the choice of additional storage offered by the LDC’s which, when used wisely, could save more money. Also grouping meters with the same LDC saved on administrative tariffs charged by the LDC and reduced the risk of a penalty by allowing all meters to draw from one pool of deliveries.

In the mid 1990's certain LDC’s programs started requiring the end-user to provide a phone jack by the meter. The gas company then installed a remote reading device to report the gas usage on a daily basis. This device was required for end-users who elected to be on zero or variable back-up. It cost an additional fee to the end-user and it also required the supplier to provide daily uninterrupted deliveries. Therefore, it is advisable to check if multiple gas meters could be merged. It also posed an additional risk that if the supplier did not ship all the necessary gas daily, the LDC would charge a daily penalty for any shortage in deliveries plus a higher cost for the gas.

The LDC’s also provided pooling programs where suppliers stored all the gas in one consolidated storage account. This saved the customer administrative charges by the LDC and minimized the potential of buying system supply during the winter which might cost the consumer substantial penalties under zero or partial back-up.

Thereafter, the Federal Energy Regulatory Commission (FERC) completely deregulated the interstate gas pipeline industry (also known as FERC Order 636). This allowed the Gas Utility Companies to renegotiate their long-term contracts and reduce the cost to reflect current market conditions.

Again, after the mid 1990's, additional tariffs went into effect which reduced the amount of storage permitted by the LDC to the end-users. Pools were set up and bulletin boards were provided to end-users for a fee. Many end-users had to look for other options for additional storage such as pipeline storage and/or gas futures in order to assure a reasonable price for transportation gas.

Let us address now the costs and related costs aspect of gas transportation. There are various ways suppliers charge end-users for the gas: index plus, futures plus, nymex plus, hedging and fixed price for twelve months or ten years, management fee or percentage of savings or a combination of the above. Some suppliers do not guarantee reimbursement to the end-user for penalties charged by LDC for non-delivery, under delivery or over delivery of gas. You should watch out for critical day. The majority of companies that do guarantee reimbursement of penalties insert a force-majeure clause in the agreement with the end-user, which many suppliers use arbitrarily for any reason whatsoever, and eventually the end-user pays the penalty price.

The cost of gas is not everything. It is imperative that an end-user selects the supplier that can provide a guaranteed uninterruptible supply of gas, delivering 100% of the customer’s usage at no additional cost, strong supply sources, program management (applying the rate that saves the maximum to the customer), utility management and other varied energy savings services. If your supplier pays your local utility bill, a copy must be sent to the customer. A detailed explanation of the new various charges assessed by the local LDC to the consumer should be compiled. (In my experience, after auditing numerous utility bills issued by deregulated companies. I have noticed many overcharges, erroneous fees, charges not agreed to or stated in the gas purchase agreement, and numerous penalties charged by the local utility company, to the consumer’s detriment. It is extremely important to check your supplier track record). During the year 2003 and prior, after numerous investigations by the authorities it was disclosed that many regulated utility companies have been overcharging their customers. There were also numerous unregulated natural gas supply and electricity supply companies who were found to be over charging and misrepresenting the program to consumers.

Pipeline capacity throughout the United States varies substantially. It is of utmost importance for the end-user to determine whether his supplier, or proposed supplier, has had any curtailments of gas deliveries in order to assess how to handle the deliveries of gas and what program to select with the local LDC. In order for the end-user to assure an uninterrupted supply of transportation gas, the end-user may elect to procure from its supplier, firm transportation gas which increases the cost but guarantees the flow of gas.

In selecting your gas supply company you should verify the supplier’s past performance, financial capabilities, stability and past performance, determine if your supplier will confront the local LDC and/or the utility commission on your behalf in case of unjustified fees or charges, delays in implementations of programs, adverse decisions which affect your account, MDQ (maximum daily quantity allowed to be delivered daily) errors, unauthorized use, excess use penalties, wrong program billing, errors in delivery credits, etc. Check if the supplier is currently operating on the cutting edge of the latest technology available to the industry and can respond promptly to tariff changes and new natural gas market innovations and technological advances.

Many end-users fail to compute the various charges that the LDC’s add to their gas bill for deliveries. They assume that the cost of the gas by the supplier is the sole cost, while if you add the various charges by the LDC associated with transportation gas; you will find out that the cost is higher then originally perceived. (To prevent potential losses, have your supplier guarantee annual savings in writing versus payments to your local Utility Company that includes commodity and delivery to burner tip with all administrative charges and taxes.)

In setting up the account on the transportation gas program, it is important to analyze the best and most economic way to install the phone lines for the meters, effectuate economic pooling charges and to group accounts in order to minimize costs.

In 1997, new tariffs were implemented by the LDC’s to allow small volume commercial customers to procure gas on the spot market which may not save money, since administrative charges may diminish the savings. Some tariffs have been implemented in order to start flowing spot market gas to private residences in the Spring of 2000. (The savings are minimal if any.)

In the past The ICC has suspended NICOR’s residential program due to lack of economic benefits and customer complaints that they are paying higher prices than buying direct from the Gas Co. The trend is to eventually eliminate your local gas utility company to procure gas on the consumer’s behalf, but only serves as a gas delivery company. In October 1999, the State of Georgia required any customer who requested gas supply, to find a Gas supply Company and then the local gas company will deliver the gas.

Be advised, that, as cost of energy (e.g. oil) increases so will the cost of natural gas.

When consumer elects to hedge his cost, hedging does not guarantee savings, it protects consumer from paying higher prices and may help with setting the budget, provided there is no substantial change in consumption. (Consumption increase or decrease may affect and increase your costs substantially). Some suppliers have deceived consumers and misrepresented the various charges and thus have caused additional expenses to consumers (some of those suppliers are currently under investigation by the various authorities, some lawsuits are pending).

During times of high-energy costs, I recommend consumers should buy gas on the open market based on fixed monthly deliveries at index plus with provision to convert at any time to other terms such as fixed etc.

A new issue has come to my attention, Local LDC are taking customers off the transportation program, if their supplier has terminated service with them, with no replacement supplier, then the consumer has to wait one year prior to going back on transportation.

Currently, additional pipelines are being constructed which will bring additional capacity. This additional capacity has already reduced the cost of natural gas deliveries.

In the past 8 years various municipalities in the State of Illinois have enacted Municipal Use Tax on natural gas that is purchased outside of Illinois for transportation customers the LDC’s are

Responsible for collecting those tax revenues for the municipalities. These charges reduce the tax savings to the consumer. Taking into consideration other administrative charges been charged to transportation customers. (Therefore consumers should review carefully the potential saving derived by buying natural gas on the spot market, it may not have an economical benefit).

There is also another charge by the LDC’s that reduces the savings to consumers. Under the tariffs filed by the LDC’s with the Illinois Commerce Commission the LDC’s may deduct for unaccounted for gas. For Nicor Gas it is about 2.16% deductions from deliveries, it increases the cost of the natural gas and reduces the savings to consumers.

As of October 1, 2003. The State of Illinois will be collecting a 5% Natural gas use tax on any natural gas deliveries in the State of Illinois, this will reduce the savings to gas transportation customers.

Residential gas service and small commercial service: in the spring of 2002 the local gas company started offering deregulated gas to its Chicago residences. Our recommendation is the consumer should be very cautious in procuring natural gas from other sources. There is a very strong possibility that you may pay a higher price not lower, once you add the gas charge, delivery charge plus other administrative charges by the gas company and/or the pipeline company, there are also a fixed gas use tax and unaccounted for gas deductions.

Deregulation has also come to the electric utility industry. As of the Summer of 1997, Rhode Island and New Hampshire deregulated electric utilities. California has approved the transportation of electricity to end-users effective April 1, 1998. In the fall of 1999, Illinois implemented the non-lottery deregulation of electricity. Starting January 2001, all commercial accounts may apply for deregulated tariffs. I recommend Abuyer beware@ when buying deregulated electricity (tariffs & rates change annually). Watch-out for stranded and transmission costs which are tact on to your local utility bill. In fact the cost may be higher, if you compute your bill by the supplier of electricity plus the bill you receive from the local electric company for delivery charges and tariffs plus additional electricity. To assure savings, get your supplier to guarantee in writing annual savings in comparison to your local utility company, have a reputable auditor monitor your bills monthly. Check if you can merge the meters or consolidate the meters on one bill. Please check with your local electric company to verify if electricity has been deregulated. As time progresses other states are deregulating electricity and gas. I recommend to look for tariffs and rates that are most beneficial for you. (Be advised that during the summer of 2000 California consumers who purchased deregulated electricity have overpaid substantially higher prices than buying direct from the local Electric utility. This has prompted the California Utility Commission to rethink the current electric deregulation.) Electricity tariffs change frequently, which affect your savings.

Today some electric suppliers are offering up-to 5 years guaranteed pricing on the cost of electricity, based on your previous years consumption. The consumer must take into consideration that delivery charges and other tariffs by the local electric company, which delivers the electricity may change and add to the costs substantially, consumer or a utility auditor should monitor the consumption, demand and 24/7 usage patterns.

In recent years various electric generating plants have converted or built new generators that use natural gas as their source of energy. This has affected the cost of natural gas during the summer

Months when additional electric generating capacity is needed. During times of increased cost of crude oil, end users elect sometimes to use natural gas instead, this causes additional demand for natural gas especially in the eastern part of the U.S. this cause natural gas prices to increase.

Residential electric service deregulation: In the spring of 2002 the electric company started offering deregulated electricity to residential customers.

We strongly recommend ”buyer beware” you may end up paying higher prices, when you compute what you pay for commodity plus delivery and other charges by the electric company (such as CTC etc.).

Due to intensive competition in the Telecommunications business, many consumers complain of unauthorized switching by carriers and erroneous fees that were not disclosed properly to the consumer. I recommend consumers request specific proposals in writing enumerating all charges and fees including taxes and pic fees, the option to terminate agreement within 90 days of start of service, if not satisfied for any reason. It is important to receive in writing from your prospective carrier the percentage of guaranteed savings in comparison to your current carrier for local and long distance (make sure the comparison is apples to apples). If possible get your prospective carrier to state in writing that you will receive lower rates as the industry reduces its rates and becomes more competitive, remember quality and reliable service is as important as competitive pricing. Caution should be exercised before switching to other local carriers in insuring financial soundness, a proper infrastructure sufficient to handle emergencies in case of interruptions. Request the new carrier to assure you the switch will be painless, check with other customers to verify previous experience by the proposed service provider. Notify cancellation in writing to your previous carrier. Require them to cooperate in the switchover in a timely fashion. Please check what are the cancellation fees and costs, if any. SBC and other baby bell telephone companies have been given authorization to sell long distance services with their local service, it is recommended that consumer should verify in detail all the costs and terms, prior to making a term committement in order to receive special rates.

In selecting a Telephone System for your company, verify the integrity of the manufacturer and the installer, check-out previous performance of the system, make sure it is reliable, has good customer support, can be upgraded, has options for growth, keep-up with advancing technologies, make sure you have a good U.P.S. for you phone system, also make sure installer can meet installation time-table with no hidden costs, use level 5 wiring or higher.

Many providers are offering T1 ISDN PRI, Voice over IP and other services which will incorporate all you phone lines, (and sometimes your data lines), you should verify the economic benefit and the cost of the equipment, there is a potential of paying a higher cost for these services and if the circuit goes down you are totally out of service.

For your Cellular needs you should monitor your monthly usage, the areas you travel in, what type of calls you are making (local, long distance, international & roaming). Then shop for the carrier that provides you with pooling of minutes, discounts on multiple phones, discounted interstate and international calls, check on reception in the areas you travel-in, whether you can switch programs monthly and cancellation of service cost. (Be advised that when a carrier offers you a free or discounted cellular phone, you are paying for it via a signed long service contract. (cancellation fees may be costly). Be sure your carrier allows you to select any international carrier you want. Check for email and Internet access via your cellular phone and its limitations.

In the past two years consumers have been searching for faster Internet access. Many companies are offering Cable Modem, Satellite Modem, Digital Subscriber Line DSL, and T-1, Frame Relay and ISDN for commercial customers. Verify that you get the service most appropriate for your needs, eliminate unused phone lines, do not over expand, use expandable modular systems.

Be advised you should require your prospective provider to submit a detailed proposal listing specifically the cost of equipment, cost of installation, cost of Modem and hook-up to your PC and/or Network Server, monthly charges, download speed, upload speed, whether it is up-gradable, the term of contract and what are the cancellation costs. In the past year, many DSL providers have went out of business, it is recommended to shop for a financially sound provider.

When converting to a T-1 for your phone service, keep one or two regular phone line as back-up.

(Watch for clear DSL data & voice, voice over IP and voice over broadband are currently available, and extra fast wireless broadband Internet connection. Also check for MATV and HDTV)

When terminating services in writing via fax & mail with a service provider, make sure you receive credit for prepaid charges and/or storage gas.

In closing this article, I will enumerate various energy conservation methods:

1. Lighting retrofit and micro-fluorescent bulbs, LED lighting

a. Watt stoppers, motion sensors, timers, photo cells, low resistance wires, low heat circuit breakers, gas heat, gas hot water heaters, and boosters, gas cooking & fireplaces.

2. Energy efficient motors, pumps and compressors (multi-stage speed).

3. Energy management system (building automation)

a. Electric demand meters with recording device, sub metering, power conditioning and/or energy filtering and surge protectors, sophisticated computerized boiler controls. Humidifiers in winter and Dehumidifies in summer, proper water softeners.

4. Gas air-conditioning and cooling. (Environmentally friendly), gas powered motors.

5. Co-generation (dual fuel) - for electricity generation, peak-shavers and/or power back-up.

a. Solar energy (Wind energy, Wave energy, Geothermal energy, fuel cell.)

b. Compressed Natural Gas for vehicles, hybrid vehicles, electric vehicle

c. The use of compressed natural gas for alternate supply and/or back-up

d. Tank-less water heater.

6. Thermal windows/solar windows (caulking & tuck-pointing, waterproofing) proper insulation.

Proper shading of structure (natural or artificial)

7. Thermal roofing (reflecting paint)

8. Energy efficient boilers

a. Proper venting of flames, return pump and proper vents for steam boilers, preventive maintenance, a constant calibration of controls, proper sensors, clean air ducts and verify the appropriate size of flow and return ducts fresh air circulation and exhaust.

9. HVAC systems, fresh air intake and exhaust systems (setbacks, initial start-up time).

Proper insulation of Hot water heaters, pipes & ducts, including Freon supply lines.

10. Installation of insulation and attic fans. The use of Humidifiers in winter and De-humidifiers in summer to increase comfort level and reduce energy consumption. Thermostats with setback feature.

11. Utilizing the run-off of rainwater, ponds and creeks for watering lawns, water-cooled air-conditioning, fiberglass water towers, toilets and laundry, also general cleaning purposes.

a. Checking leaking pipes (water, faucets, toilet tanks, steam and return pipes) (water savers)

12. The auditing of utility bills for electric, gas (commodity & delivery charges), telephone voice and data (local, IntraLATA intrastate, interstate, international, toll-free, calling cards, satellite, broadband, voice over broadband, cellular & cable, MATV, HDTV), (water conservation, water & sewer charges, the use of rainwater and/or creeks)

13. Inspecting building envelope, for air seepage, cold spots, hot spot, inspection via thermal imaging of draft and loss of HVAC efficiency. Insulate water heater and hot water pipes leading from the hot water heater, install a circulating pump.

14. Combining voice and data communication in order to save on telecom costs provided you have performed a proper analysis to determine the economic benefit derived from such combination (consumers should be aware, that it is probably not economically beneficial to smaller users of telephone lines).

15. Renewable energy power systems – feasibility analysis and implementation

(solar/photovoltaic, geothermal, wind, fuel-cell/hydrogen, etc.) Financing, rebates, grants, tax credits applicable to systems and efficiency implementation.

This article is written by YJ. Draiman, Dir. of Utilities for US Gas Telecom, Energy and utility auditing, consulting company located in Evanston, Illinois. Tel. 847-274-3100

Fax 847-274-3108 (You may view our website for updates and utility cost information)

Web: www.usgaselectric.com. Email: admin@usgaselectric.com

Mr. Y. Draiman also conducts Utility Seminars & Writes Articles on Utilities; Mr. Draiman also consults with the Illinois Commerce Commission. (Mr. YJ. Draiman has been in the Utility and Energy conservation business since the early 1980’s. Mr. Draiman has extensive background in rehabbing buildings and designing energy efficient buildings, renewable energy generation also had previous interest in Natural gas well and exploration)

07162007dereg.wpdTHERMAL STORAGE AND DEREGULATION

No area of the HVAC industry is more sensitive to the changes developing within the electric power industry than off-peak air conditioning. Thermal storage for cooling applications depends almost entirely on time differentiated utility rate structures for its existence, and the future form and substance of these rates will determine the directions this industry must take in order to survive and flourish. Certainly, there are capacity-limited or niche storage applications, such as churches and theaters, but the vast majority of storage systems are installed to capitalize on favorable time-of-use electricity rates.

The benefits of thermal storage to the customer are only a reflection of the thermal storage benefits to the new power providers and marketers. It is useful to review and expand on the various impacts thermal storage can have on the unregulated electric power industry and how those impacts can improve a customer's negotiating leverage.

As was made clear in recent ASHRAE-sponsored forums, we can only predict how government's regulatory retreat will impact utilities, power producers, the proliferation of energy marketers and ultimately, the customer1. Definitive directions for the industry are emerging. As in any free marketplace, the ability to produce more with less provides competitive advantage-and ultimate success.

Power for Five Instead of Four

The greatest benefit of thermal storage will be the ability to produce more kWh from fewer kW of operating capacity. In the regulated past, idle generating capacity represented additional operating cost that, although undesirable, could be passed along to a captive market. Utilities attempt to minimize the impact of excess and idle capacity through incentive programs and rate structures that penalize customers' poor load factors. However, in a monopolistic environment these inefficiencies did not result in a loss of customers. This, of course, is rapidly changing. For an industry that is five times more capital intensive than other manufacturing enterprises, the economic albatross of idle capacity will represent an enormous competitive disadvantage2.

The commercial customer presents a particularly poor load profile to the utility. Therefore, commercial customers pay, on average, 65% more for their electricity than industrial customers. Air-conditioning equipment is the principal contributor to poor commercial load profiles. As far back as 1983, Electric Power Research Institute reported that cooling equipment consumed about 30% of overall commercial sector kWh, but 44% of the kW demand3.

Using typical industry "rules of thumb," the specific impact of the chiller equipment can be approximated4. Including condenser side fans, controls and pumps, peak chiller demand will typically range from 0.7 to 1.3 kW/ton, depending on size and type of equipment, method of heat rejection, etc. At 500 ft2/ ton, the area-based demand would be 1.4 to 2.6 W/ft2 (15 to 28 W/M2). Other electrical loads, including lighting, fans, pumps and miscellaneous can be estimated at 3.5 W/ft2 (38 W/M2). The specific electrical demand displaced by thermal storage would range from 29% to 43% of the building peak demand.

The ASHRAE Air Conditioning Systems Design Manual contains a detailed analysis of energy consumption for a 264,000 ft2 (24 526 M2 ) building operating under an Ontario Hydro rate structure. The chiller equipment contributed 31 % to the peak demand but consumed only 8% of the annual kWh. Annual load factor for the building was only 37%. Partial and full thermal storage systems could have improved the load factor to 44% and 55%, respectively.

All other things being equal, thermal storage customers will consume approximately the same kWh as their conventional system counterpart. Even if customers can only displace 20% of the peak demand-a conservative goal-the power provider has the opportunity to sell all of the original kWh, plus an additional 20% in kWh sales to another customer.

For every four similar thermal storage buildings, the power generator has the opportunity to serve a fifth, with all of its associated kWh, from the same generating equipment. Any power purchaser with the ability to shift 20% to 40% of the building demand, thereby releasing that generating capacity to serve another customer, will occupy an enviable position as energy providers compete for the most desirable customers. The power producer that generates more electricity with less capital investment will be able to do so at a lower price.

Attendees at the ASHRAE short course on deregulation heard the message loud and clear-if you -want to negotiate seriously with a power provider, bring your load profile5.

More kWh with Less Fuel

Much discussion in recent years involved the energy efficiency of thermal storage systems. Thermal storage systems can be designed to use less electrical energy than their conventional counterparts. However, energy consumption depends on many factors, such as the type of storage, the type of chiller, the arrangement of the components, the local climate, method of heat rejection, air-side design and operating temperatures. Storage systems will use approximately the same amount of electricity as conventional systems, and, in any case, the owner is typically more interested in energy cost than in energy use.

From the perspective of society's interest in the environment and the utility's interest in economy, the real concern is fuel use at the power source rather than the kWh registered at the building's meter. A study completed in 1995 for the California Energy Commission found that thermal storage can increase energy efficiency by 20% to 43% for each kWh shifted to night-time production2.

The commission's recommended procedure differs from the "marginal plant" method by addressing two major aspects of utility operation in calculating the potential savings. First, a large percentage of steam generators must be kept in a state of readiness to meet the followings day's peak load. The additional fuel needed to produce electricity represents a relatively small increase.

The study reports that merely increasing the load on a typical California steam plant from 30% to 50% reduces the heat rate in Btu/kWh from 11,744 to 8,934. Also, because thermal storage is displacing on-peak demand, less generating capacity must be maintained in reserve. In terms of fuel use, it is appropriate to include these considerations; however, either method ensures a net source fuel advantage for thermal storage.

Other benefits include the reduction in operating costs compared to on-peak marginal capacity, lower emissions costs per kWh and improved transmission efficiency. However, the benefits reinforce the conclusion that thermal storage provides a strong economic incentive to the power provider, as well as improved environmental performance, regardless of the impact at the meter.

This study was confined to the fuel and generating mix for California. Recognizing both the importance of the conclusions and the limitations of the scope, ASHRAE is funding Research Project 991, Simulation of Source Energy Savings and Energy Utilization for HVAC Systems.

Paying the Rent and Rates

The biggest concern relates to the eventual direction of electric power rates. First, consider some important facts regarding today's power industry6.

• Reserve capacity is decreasing (Figure 1). After the energy scares of the early 1970s, capacity margins by 1982 had risen to 33%. By 1993, however, these margins were reduced to 21% and are projected to fall another 4% by early in the next decade.
• Utility work-in-progress totaled $13.5 billion in 1995. This represents a 21 % reduction from 1994 levels and a 34.5 % reduction from 1992.
• Every North American Electric Reliability Council Region, except Alaska (0.1% of total), registered a non-coincident summer peak load higher than the winter peak. Overall, the summer peak exceeded the winter peak by about 14%.
• The non-coincident peak is projected to increase to 718,000 MW by 2005. The 1995 peak was 620,871 MW, an increase of 35,000 MW from 1994. The power industry generating capacity increased by 7,000 MW in the same period.
• Utility generating capability was 706,112 MW in 1995 with total sales of approximately 3 trillion kWh. This provided an annual load factor of less than 50% if all capacity is included (not a standard industry methodology). Non-utility generators add about 10% to the total capacity.
• Coal and nuclear powered generators comprised about 57% of utility capacity in 1995, but they generated almost 78% of utility kWh.
• As of the end of 1995, an additional 9,000 MW of non-utility generation had been planned.

Considerable debate exists about the eventual savings that deregulation will produce, but it is clear that off-peak power will be extremely inexpensive.

Consider the predicament of an industry that has 57% of its capacity in equipment that, in the face of diminishing capacity margins and technical limitations, cannot be turned on and off easily. Furthermore, think about the level of off-peak load factors if the annualized load factor is already relatively dismal. In addition, a power provider no longer is guaranteed whatever off-peak load it may have once had. It must compete with other generators, also desperate to make whatever profit they can, in a market engorged with excess off-peak product.

Also, consider the entire concept of "stranded investment.7" The number and scope of factors that must be considered by regulators and utilities in restructuring an industry that equals 5% of the gross national product is staggering8. The question of "stranded investments" alone, estimated by Edison Electric Institute at 60billionto60 billion to 60billionto300 billion9, may impact profoundly on the survival and profitability of some of the largest corporations. At least one utility with an extensive inventory of nuclear generating equipment has threatened bankruptcy. Whether these investments were based on prudent decisions made within the isolation of a regulatory environment, or careless exploitation of a privileged position, an enormous percentage of generating equipment may be considered uneconomical to operate under the pressures of an open electric power market. This may impact more on the future of power rates than the actual resolution of the investment burden.

Other evidence exists that the time-of-use differentials that have fostered the growth of thermal storage will continue. A proposed rate by Texas Utilities contains generous discounts for off-peak power that can exceed 80%10. That same rate includes attractive pricing for interruptible service-an obvious advantage for storage. Other recently filed rates for California utilities include significant energy time-based differentials as well as substantial demand charges11,12. Rates filed within the past year are still relying on traditional methods of discouraging on-peak energy use for commercial customers.

Demand Side Management Programs

There is no doubt that Demand Side Management (DSM) programs are in jeopardy, and equipment-related incentives are particularly threatened. The Energy Information Administration summarized this problem by saying,

"...competition is creating pressure for utilities to cut costs. In some instances, this has resulted in a reduction in planned DSM expenditures and a shift away from customer rebate programs. Further, to the extent utility generation revenues ultimately may be based on competitive market prices, a conflict could emerge between the interests of generation-owning utilities in higher generation prices and the effects of some DSM programs to reduce demand and possibly to help hold down competitive prices for generation. These factors could contribute to slower growth in energy savings from DSM programs." 6

In simpler terms, something is wrong when a power producer gives money to a customer to purchase less power, particularly if the financial incentive might eventually benefit a competitor. Although the frameworks currently developed for deregulation likely will include procedures for equitable distribution of the costs associated with energy efficiency programs, the individual power entities will have little incentive to willingly and aggressively participate in these programs, or to develop their own. As one analyst puts it, "there may still be some DSM credits, but after the transition they will be relegated to regulatory purgatory." 13

Thermal storage is uniquely positioned in this context. Its primary benefit to the power provider is not a smaller customer, but a better, more profitable customer. As deregulation relaxes the restrictions that limit the coupling of incentive programs to long-term contractual relationships, thermal storage incentives will emerge as effective tools for establishing mutually beneficial customer/provider alliances. For instance, Houston Light & Power's successful thermal storage program requires refunding of the incentive amount if power is purchased from another source within 10 years. 14 Ohio's FirstEnergy Corp also requires long term service agreements in exchange for its equipment incentives and rebates.15

Table 1: Effect of discharge rate on total Table 2: Comparison of equipment for conventional,

storage capacity for a common cool storage partial and full storage options

module.

Why Thermal Storage?

If demand reduction and off-peak power consumption continue to command substantial discounts in electric power costs, the question arises, "Why will thermal storage continue to be an attractive method of achieving load shifting in the deregulated energy market?" Several reasons include:

1. Thermal storage systems target the most egregious contributor to poor load profiles-commercial cooling systems. Also, the technology exists and is proven. Thermal storage represents one of the few legitimate tools for shifting load. Energy efficiency benefits society and the customer, but thermal storage also benefits the industry setting the price for that energy.
2. Thermal storage systems are designed for the commercial customer (who always pays the highest time-dependent rates).
3. Storage systems do not negatively impact a facility's operation, as other load shedding or load control programs almost always do.
4. Existing thermal storage technology is easily adaptable to central chilled water plants. Even though centralized chillers only serve about 25% of commercial floor space, 25% of almost 60 billion ft2 (5.5 billion M2 ) represents a substantial and focused market. 16 Thermal storage systems can make a significant difference in relatively few installations. Chilled water systems are found in only 3% of commercial buildings but serve almost 80% of buildings over 200,000 ft2 (18580 M2 ) and more than 20% of buildings between 10,000 ft2 (929 M2) and 200,000 ft2 (18 580 M2).
5. Thermal storage is versatile. Other than the certainty that on-peak power consumption will continue to command a premium, there is little assurance concerning the form those rates will take. In many cases customers will have a choice as to the structure of the demand penalties. Traditionally, a simple demand charge (kW) and energy charge (kWh), often including a time-of-day differential, have been used to discourage on-peak electrical use. Rate design will surely be more exotic in a deregulated environment as providers maneuver to offer the most competitive plans possible. Real-time rates, often superimposed on a traditional demand structure, and interruptible rates, a fairly common tool in natural gas pricing, will also grow in availability.
   The different "flavors" of rate structures available to the power customer will certainly multiply. Attempting to optimize equipment selection for a particular application, when the eventual form of the energy rate structure is in such a state of flux, is difficult at best. One of the most appealing benefits of cooling thermal storage is the wide range of performance typically available from the same equipment. Table 1, derived from published performance charts for a common ice storage device,17 shows that equipment selected for one type of operating logic can be effective equally as the optimum discharge logic changes.
   As discharge periods are compressed and the cooling load on storage increased, there is only a modest decrease in the total storage availability. In a six-hour discharge, almost 90% of the original total capacity is maintained at almost double the original rate. In each case, all the remaining stored capacity will still be available at the reduced discharge rates.
   A properly designed cooling storage system is flexible enough to respond to virtually any variation in rate structure that might eventually emerge as the most economic.
6. Thermal storage is also cost effective. DSM programs have helped to foster the growth and acceptance of thermal storage. The generous terms of these programs often made it economical to install storage capacities capable of avoiding all the on-peak chiller operation. This is referred to as "full storage." Often forgotten is the fact that if the goals are more modest, thermal storage can be installed with little or no cost penalty as compared to conventional chiller systems. DSM incentives are certainly welcome, but not necessary to make thermal storage a good investment. There are no defined limits on the quantity of storage that can be theoretically applied to a building.

An alternative referred to as "partial storage" minimizes or eliminates any additional initial capital investment. By operating a chiller for the entire day, on-peak at standard conditions and off-peak at ice-making conditions, its size is usually reduced to 40% to 50% of the conventional design.

Storage is only needed for about 40% to 45% of the required ton-hours. Both chiller and storage are greatly reduced in size, compared to the "full storage" design. Peak demand savings of 50% to 60% of the standard chiller demand are usually achieved. Table 2 summarizes the equipment and demand savings comparison of conventional, "full" and "partial" storage designs. The building is assumed to have a 500 ton (1758 kW) peak load with an average load of 425 tons (1495 kW) over its 11 -hour cooling period.

Many examples exist of effective thermal storage systems that were installed for little or no additional cost over their conventional alternatives and that also provide significant energy and energy cost reductions. One storage system that eliminated all on-peak chiller demand was installed in a state government service center in southwest Florida for 56,000lessthanthe56,000 less than the 56,000lessthanthe2.1 million that was bid for conventional system.18 The additional 187,500providedbytheutilityresultedinanetfirst−costsavingsofalmostaquarterofamilliondollars.Annualdemandandenergycostsavingstotal187,500 provided by the utility resulted in a net first-cost savings of almost a quarter of a million dollars. Annual demand and energy cost savings total 187,500providedbytheutilityresultedinanetfirst−costsavingsofalmostaquarterofamilliondollars.Annualdemandandenergycostsavingstotal120,000 per year. The building operates with 10% less energy than the typical state-owned facility and almost 42% less energy cost on a square foot basis.13

The economics of thermal storage can usually be justified under any power rate that significantly penalizes on-peak power consumption.

As Laurence J. Peter once said, "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." The same can easily be said of electric industry analysts. Engineers will take refuge in whatever facts they can grasp within the confused and nebulous nature of today's electric power industry.

References

1. ASHRAE 1998 Winter Meeting, Forum 7, "Impact of Electric Utility Deregulation on Thermal Energy Storage."

2. "Prepared for the Thermal Energy Storage Systems Collaborative of the California Energy Commission" and "Source Energy and Environmental Impacts of Thermal Energy Storage." Tabors Caramanis & Assoc.

3. "Commercial Cool Storage." 1983. Electric Power Research Institute.

4. Lorsch, Harold G. et al. ASHRAE Air-Conditioning Systems Design Manual.

5. "Deregulation: Utility Industry Restructuring for Professionals." ASHRAE Continuing Education

6. Electric Power Annual 1995, Volume 11. December 1996. Energy Information Administration, U.S. Dept. of Energy, Washington, D.C.

7. Silvetti, Brian M. November 1997. "The Application of Thermal Storage in an Unregulated Power Marketplace." Proceedings of the 20th World Energy Engineering Congress.

8. Gottfried, David A. May 1997. "Electricity Deregulation." Heating/Piping/Air-Conditioning.

9. "Stranded Cost Recovery: Critical Element for Electricity Competition." February 1997. Edison Electric Institute.

10. Rate GTU - General Service Time-of-Use, Texas Utilities Electric Company, 1997.

11. Schedule AL-TOU. San Diego Gas & Electric Company. February 1997.

12. Schedule 19 - Medium General Demand-Metered Time of Use Service. Pacific Gas & Electric. October 1996.

13. Rouse, James B. March 1997. "Competitive Pressures Drive Businesses to Seek Electricity Choices." Energy User News.

14. "Agreement for Commercial Cool Storage." Revision 3.0. March 15, 1996. Houston Lighting & Power Company.

15. "Energy-The Power to Choose," Advertisement Section. June 9, 1997. New York Times.

16. 1995 Buildings Energy Consumption Survey. Energy Information Administration.

17. "LEVLOAD ICE BANKÒ Performance Manual, System Charge, Discharge and Pressure Drop Curves." Calmac Manufacturing Corp.

18. O'Neal, Edward J. April 1996. "Thermal Storage System Achieves Operating and First Cost Savings." ASHRAE Journal.

19. "Performance Issues for a Changing Electric Power Industry." January 1995. Energy Information Administration Office of Coal, Nuclear, Electric and Alternate Fuels. Washington, DC. U.S. Dept. of Energy.

Calmac Manufacturing Corporation