Managing The New World Of Electricity Sales

In a new office building near a suburban Indianapolis freeway, some five dozen
employees talk on phones and study computer screens—routine office stuff these
days. But these workers are leading the way in a little-known but enormous change
in how you get your electricity, and even how much you pay for that power.

The employees work for ACES Power Marketing, which stands
for Alliance for Cooperative Energy Services. The simple version of what they
do is buy and sell electricity among electric utilities. Of course it’s not
that simple.

Although ACES opened for business nearly two years ago, the
seeds of its origin sprouted in 1992 when Congress allowed competition in the
sale of electricity among utilities. Before that change, a utility facing a
hot day that might require extra capacity to power all of its customers’ air
conditioners would call another utility and buy electricity at cost plus a standard
markup. With competition, utilities aren’t likely to be so polite. Today, a
heat wave or a cold spell can make electricity a very valuable commodity that
utilities with excess capacity can charge for. For example, when temperatures
soared around the country during the summer of 1999, a standard block of power
that sold for about $11,000 during the spring and fall was being sold to some
desperate utilities for more than $1 million.

With that kind of money at stake, entrepreneurs all over
the country see new business opportunities managing those sales for the utilities.
Hundreds of power marketing companies have registered with the government’s
Federal Energy Regulatory Commission, to help utilities manage the risky and
high-stakes business of moving electricity from parts of the country where there’s
a lot of it, to places where there’s not enough. And those power marketers naturally
hope to make a profit in the process.

That’s the wild world that the nation’s 900 electric cooperatives
found themselves in a few years ago, when some of them decided to take charge
of the new power marketplace. Five regional power generation co-ops, including
East Kentucky Power Cooperative based in Winchester, joined together to form
ACES. This new power marketing co-op would develop the contacts and expertise
to cost-effectively sell excess power at the best possible price and buy needed
capacity at the most reasonable rates available.

“The relatively small size of co-ops worked against them in an open market,”
says Roy Palk, president and CEO of East Kentucky Power Co-op, which generates
and transmits electricity to 17 local electric cooperatives, which in turn distribute
that power to 400,000 homes and businesses in the central and eastern part of
the state.

“ACES gives us the economies of scale, advice and consultation, and the ability
to hedge risks so that we can optimize our capacity and other sources of capacity,”
says Palk. “It’s easier and cheaper than doing it alone.”

For the future, ACES is being studied as a possible model
to serve all the electric co-ops in the nation. It has already opened a smaller
office in Atlanta to work with co-ops in Georgia.

With competition and a continued reliance on electricity seeming
to be permanent facts of modern life, ACES seems destined to play an increasingly
important part in keeping your electricity reliable and affordable.

—Paul Wesslund