'Power brokers' switching electricity choice to buyers
The "Power Team" has claimed victory.
This is no sports report. Power Team is something relatively new in business. It is an electricity-marketing group, buying power in one place, selling it in another location. It is the largest power broker - dealing in electrical power, not political power - in the United States.
"We move the juice around," says spokesman David Greer - 31,500 gigawatts throughout the nation so far this year.
Nancy Bessey, president of the company, stated Thursday that the competitive "open market" serving millions of customers in Pennsylvania, New Jersey, Maryland, Delaware, and part of Virginia, had worked, providing adequate power during the heat wave that began over the July 4 weekend.
With air conditioners turned high, heat waves are nearly always a test for power companies. There were power outages and voltage reductions before partial deregulation of the power business, just as there were last week.
For example, last Tuesday northern Manhattan went dark for 19 hours. But it was because of equipment failure and not a power shortage.
If a market-based system had not raised the wholesale price of power, Ms. Bessey says, "supplies would have remained in the South and Midwest and the record peak demand [in the mid-Atlantic region] would not have been met."
In California, much of New England, and in some other states, the old power-utility system is being replaced. The regulated monopolies that generated, transmitted, and distributed power are being broken up. Many have sold their power-generation facilities to companies concentrating on that business. The wholesale power business was deregulated three years ago. These generating companies sell their power to distributing companies. In 22 states with 70 percent of the population, so far, distributing companies are set to compete for customers.
Generating companies also sell to Power Team-type firms. These have become numerous.
Power Team is a division of PECO Energy Co., a utility based in King of Prussia, Pa. Other such power marketers belong to power generating companies or are independent.
"A cell phone and a laptop computer is all you need to get into the business," says Ken Maize, editor of Electricity Daily, a New York publication.
Last summer, some independents got into trouble when they couldn't deliver power they had contracted for. They went bankrupt, leaving customers in the lurch.
"There have been some con men promising things they couldn't do," says John McCaughey, editor of Energy Perspectives, Alexandria, Va.
Experts say the new system, though still in transition, works fairly well.
"Competition is better than regulation," says Irwin Stelzer, an economist at the Hudson Institute in Washington.
William Brier, spokesman for the Edison Electric Institute in Washington, representing investor-owned utilities, says the industry did "a magnificent job" in the recent heat wave.
One concern with deregulation has been that competition might not prompt enough surplus generating capacity to deal with peaks in demand.
Not so, says Mr. Brier. Investors have announced plans for "several thousand megawatts" of capacity recently for the East Coast region. These so-called "merchant plants" may win some long-term contracts to supply power to distributor utilities. But they may also supply power to marketers for meeting peak demand.
During peaks, wholesale power costs can jump seven times normal or worse.
The new facilities use efficient combined-cycle, natural-gas plants that cost about $100 million apiece.
The assumption for competition is that it will reduce power costs.
Thomas Stauffer, a Washington energy consultant, is skeptical. He wonders if the new layer of brokers and speculators will add costs that customers will pay.