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Case
Histories
Seeing is believing. Here are some case histories of
projects and programs that IEC President Mark Burns has implemented,
and the natural gas savings and electricity savings that followed.
Electricity Aggregation Programs
Opt-out, four communities, 57,000 pop.
Opt-out, single community, 54,000 pop.
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Natural Gas Aggregation Programs
Opt-in,
single community, 85,000 pop.
Opt-out, single community, 85,000 pop.
Opt-out, single community, 22,000 pop.
Opt-out, single community, 34,000 pop.
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Commercial
and Industrial Clients
1100
Unit Apartment Complex |
Opt-out
Governmental Aggregation Program
Buying Group Description: Four communities
seeking offers for Residential and Commercial customers. Combined
Population: 57,000.
Local Utility: Ohio Edison
Challenge: A limited
amount of discount-price power is available on a
first-come-first-served basis. Over 100 communities seek this power,
but only a small fraction will receive it.
Resolution:
| · |
Mr. Burns
demonstrated to the Mayors and City Council that open-market conditions
would not result in significant savings for their residents. |
| · |
He explained
the process for obtaining this limited supply of discounted power that
was set aside to "jump start" competition. He convinced the elected
officials that those who acted quickly could receive this power and be
able to save their residents the most. |
| · |
He led Public
Hearings to gain support for the need for timely action. |
| · |
Employed
formal project management techniques that completed numerous tasks in
parallel. |
| · |
Eliminate all
slack time from the project schedule. Began work on the next milestone
the moment the prior critical-path activity was accomplished. |
| · |
Each community
received the discounted power on the first day deregulation was allowed
in Ohio. They realized savings up to 50% off their generation shopping
credit. That equated to over $300/year in savings for many residents. |
| · |
Many
communities represented by other consultants did not act quickly enough
to receive this discounted power. Residents in those communities
received offers based on the prevailing market conditions. Those offers
yielded savings of only 1-3 percent off generation shopping credits. |
| · |
By
understanding the process, preparing the clients, informing all
stakeholders of their plans, and using excellent project management
techniques, we were able to make this a true success story. |
| · |
Collectively,
these communities have saved their residents and small businesses over
$8 million in the first three years of their programs. |
Opt-out
Governmental Aggregation Program
Buying Group Description: Single community
seeking offers for Residential and Commercial customers. Community
Population: 54,000.
Local Utility: Cleveland Electric Illuminating
Challenge: The
community is under severe budget constraints, but wants to move forward
with an electric program to help its residents and small businesses
save on their utility bills. They are also looking for creative ways to
fund the restoration of a Veterans' Memorial.
Resolution:
| · |
Mr. Burns
wrote the Request For Proposal to require the winning supplier to make
a donation for each account enrolled in the program. |
| · |
The donation
was earmarked for the specific purpose of restoring the Veterans'
Memorial. |
| · |
The RFP also
required the winning bidder to reimburse the community for its
administrative costs in establishing the program |
| · |
The cost to
the supplier was passed onto the customers through a slightly higher
offer price, but significant savings were still achieved. |
| · |
The donation
prevented tax dollars from being used to restore the Memorial. |
| · |
Through the
creative thinking of its consultant, the Community was able to
establish and administer the program at no cost, and was able to fund a
much needed restoration project without using taxpayer dollars. |
| · |
The supplier
was also able to gain a great deal of customer support and loyalty by
being recognized for making the generous donation. |
Opt-In
Governmental Aggregation Program
Buying Group Description: A single community
seeking offers for Residential and Commercial customers. Community
Population: 85,000.
Local Utility: Dominion East Ohio
Challenge: How to
coordinate an opt-in program with an opt-out program that will start
the following year without damaging the buying group's size and
bargaining power.
Opt-out programs are only allowed to automatically aggregate eligible
customers who have not chosen a supplier on their own. Customers
joining the initial opt-in program therefore are ineligible to be
automatically included in the opt-out program. They must take action to
join the opt-out program.
Resolution:
| · |
This scenario,
while not desirable and/or recommended, came about because the
regulations were not yet in place to allow for opt-out aggregation.
Only Opt-in aggregation programs were allowed at the time. |
| · |
With natural
gas prices high and the winter heating season approaching, the
community decided it was best to begin with an opt-in program so that
its residents would have a lower-cost alternative to the local utility
prices. |
| · |
The Request
for Proposal (RFP) was written to ensure suppliers knew that an opt-out
program would follow at the end of a desired 1-year opt-in program. |
| · |
Only suppliers
agreeing to bid on the subsequent opt-out program were eligible to bid
on the opt-in program. |
| · |
The objective
was to structure a deal, if possible, with the same supplier for both
programs. |
| · |
To make this a
possibility the contract with the winning bidder for the opt-in program
contained a provision affording them the "right of last look" for the
opt-out program. |
| · |
Created open
enrollment during the 3-week time period the opt-out notices were being
sent. This allowed customers in the opt-in program to transfer to the
opt-out program. Otherwise, they would be renewed as the supplier's
customers and not those of the Governmental Aggregator. This would
drastically reduce the size of the buying group and lessen their
bargaining power with suppliers. |
| · |
Also wrote
into the contract the need for an open enrollment during the 7 summer
months so people who missed the earlier opportunity to transfer from
the opt-in program to the opt-out program could do so. |
| · |
Press releases
at key times helped get the word out and enrollment spiked. |
| · |
Held public
hearings and stressed how the opt-in customers could join the opt-out
program. |
Opt-Out
Governmental Aggregation Program
Buying Group Description: Single community
seeking offers for Residential and Commercial customers. Community
Population: 85,000.
Local Utility: Dominion East Ohio
Challenge: Community
leaders need to decide when to lock-in a fixed price for the upcoming 6
months of the winter heating season.
It is late August and community leaders have until September 10th to
"strike" their winter price based on the prevailing NYMEX natural gas
futures market. A number of factors could and will influence the NYMEX
prices during that time. Officials are not sure how the market will
move, what will cause it to move and when is a good time to strike the
winter price.
Resolution:
| · |
Frequent
communication and timely action are needed to make wise decisions here. |
| · |
Mr. Burns has
briefed them on the factors that are likely to drive the market. Those
factors, include but are not limited to: near-term weather reports,
hurricane activity in the Gulf of Mexico, natural gas storage reports,
crude oil price volatility driven by unrest in the Middle East, nuclear
power plant planned and unplanned outages, and technical analysis of
natural gas price charts. |
| · |
By trending
market price volatility, the consultant is able to calculate how much
the price could go up over a given period of time. This "Value at Risk"
(VAR) was used to help quantify short-term risk/reward potential. |
| · |
By knowing the
volume of natural gas that will be consumed during the winter months
along with the price volatility of the futures market, the consultant
is able to derive a VAR of $2.4 million over the next 12 days at a 95%
confidence interval. This information allows the Mayors to know the
limits of how much their residents stand to gain or lose on a
collective basis during that time period. |
| · |
(i) A
favorable storage report came out on Thursday morning at 10:30 E.T.,
(ii) the client was immediately notified, (iii) prices declined as
expected, (iv) client instructs the consultant to strike the winter
price, (v) supplier purchases the gas on the NYMEX futures market, and
(vi) the residents receive a very attractive price for the winter
heating season. |
Opt-Out
Governmental Aggregation Program
Buying Group Description: A single community
seeking offers for Residential and Commercial customers. Community
Population: 22,000.
Local Utility: Dominion East Ohio
Challenge: Identifying
eligible customers within the physical municipal boundaries of a
community possessing 5 different mailing city descriptions.
The community in question was formed in 1991 by combining
small-unincorporated areas into a Village and ultimately became a City
the following year. However, throughout this complex transition they
retained 5 unique postal city addresses. When purchasing the community
customer list from the local utility they are not able to isolate on
municipal boundaries. They provide customer data based on eligible zip
codes. In this case, the customer list contained thousands of accounts
that were not within the physical municipal boundaries. These accounts
had to be identified and removed to prevent inadvertent customer
switching.
Resolution:
| · |
The founder of
Independent Energy Consultants, Inc. (IEC) had previous experience
developing an opt-out electric program with this community. That
experience made it easier to identifying boundaries and eligible
customers. This is a benefit of using a consultant like IEC who can
administer both electric and natural gas aggregation programs. |
| · |
Numerous
resources were used to develop an accurate list of customers. Those
included, but were not limited to: Engineering databases of street
addresses; County Geographical Information Services (GIS) parcel
mapping; 911 street address listings; detailed community maps; Global
Positioning Systems (GPS) software tools; and USPS Zip code reports. |
| · |
Opt-Out
Notices were designed with a prominent warning disclaimer for customers
to contact the supplier if the notice was received by someone outside
the municipal boundaries. |
| · |
A visual
verification was performed on questionable addresses. |
| · |
By using a
combination of sophisticated software tools, list matching techniques,
and a great deal of manual labor, we were able to produce a very
accurate list of eligible customers. There were no instances of
inadvertent customer switching. |
| · |
The City also
received an auxiliary benefit from the consultant's work in that it was
able to update some of its tax records. |
Opt-Out
Governmental Aggregation Program
Buying Group Description: A single community
seeking offers for Residential and Commercial customers. Community
Population: 34,000.
Local Utility: Dominion East Ohio
Challenge: Minimize
customer confusion while meeting state and utility notification rules
during a change in Suppliers for an opt-out Aggregation Program.
Whenever a customer changes suppliers on his/her own, the previous
supplier, the local utility and the new supplier all send
computer-generated forms to the customer documenting that request and
tracking the progress in migrating to the new supplier. However, when a
customer is changing suppliers because his/her Governmental Aggregation
program has changed suppliers, opt-out notices are the normal and
desired means of communication with the customer.
Resolution:
| · |
Brought the
issue to the attention of the new and former suppliers along with that
of the local utility and state regulator. |
| · |
Facilitated a
process whereby all parties agreed that the rules did not fit this
situation and if literally applied would defeat the purpose of the
rules. |
| · |
The local
utility developed computer system workarounds to prevent certain
notices from going out. They also eliminated the need for any action on
the part of the former supplier. They were able to recode the buying
group customer's accounts as being served by the new supplier. |
| · |
The new
supplier sent opt-out notices to all eligible customers informing them
of the new program's price and terms and conditions. |
| · |
The local
utility sent confirmation letters to all customers who remained in the
buying group served by the new supplier. |
| · |
The new
supplier began service and sent welcome letters to the participating
customers. |
| · |
This process
initiated and facilitated by Mark Burns eliminated the need for "drop
notices" being sent by the prior supplier. Had they been sent,
customers would have thought they were being dropped from the
community's program when all that was actually happening was a change
in suppliers. This prevented a great deal of confusion that would have
led to numerous calls to city hall. |
| · |
Press
releases were created and properly timed to get the word out during
this possible period of confusion. |
Commercial
and Industrial
Clients
1100
Unit Apartment Complex
Client Description: Apartment complex
with 1100 units in 122 buildings served by 55 natural gas accounts.
Local Utilities: Columbia Gas of Ohio
& Columbus Southern
Challenge: A severe
ice storm knocks out power for several days. Boilers
deenergize and pipes freeze and burst. In this turmoil the
property manager was rightfully addressing immediate needs and did not
recall the language in his natural gas contract.
Resolution:
| · |
Upon learning
of the major ice storm, IEC contacted their client and inquired about
their electric status, knowing that electricity was needed for their
gas-fired boilers to operate. |
| · |
We were
informed that power had been out for a prolonged period and the
apartments were using portable space heaters. |
| · |
IEC then went
to our contract database and discovered provisions that required our
client to pay a penalty and notify the supplier if they expected to use
less than 90 percent of their contracted quantity. |
| · |
Shortly
thereafter we were informed by our client that the subzero temperatures
had caused many of the boilers’ piping to freeze and crack
rendering them permanently inoperable. |
| · |
IEC was able
to verify that 18 of the 55 natural gas accounts were not consuming gas
because they were associated with the damaged boilers. |
| · |
IEC contacted
the supplier and informed them of the situation, mentioned the Force
Majeure clause of the contract covering “Acts of
God” and recommended the supplier reduce the contract
quantities by the respective amounts. |
| · |
Due to prompt
action by IEC our client was able to avoid paying penalties and the
supplier was able to quickly readjust their scheduled gas supplies. |
| · |
Finally, IEC
assisted the client in analyzing the cost effectiveness of various
boiler repair and replacement options. The analysis included
capital costs, maintenance costs, and fuel cost forecasts for both
electric
and natural gas options. |
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