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City Utilities strikes deal with power broker TEA

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by Karen E. Culp

SBJ Staff

City Utilities has entered into an agreement with The Energy Authority, or TEA, for that company to market CU's off-system wholesale power, said Ken McClure, executive senior manager for customer relations and marketing for the utility.

"There's been a big change in the past two years in power being marketed on the wholesale market. Our agreement with TEA has come about because of those changes," McClure said.

An order from the Federal Energy Regulatory Commission in the early 1990s opened up the wholesale utility market and removed some of the prior restraints on buying and selling wholesale power, McClure said.

"Buying and selling power has always gone on, but on a much different level. Previously, if a utility needed energy, they would call up and we would sell it to them, and probably wouldn't even talk about price. We would then ask for a return favor if our need ever exceeded our production capability," McClure said.

The "loosening of restraints" on the power market has resulted in an increasing number of people getting involved in power marketing, McClure said.

"There are literally hundreds of power marketers. Now anyone with a phone and a computer can sell power just like any other good," McClure said.

The attitude has shifted so that instead of buying in times of need, power companies buy power when they can get the best deal. City Utilities looks at the wholesale power prices and determines if the utility can buy power at a lower cost than that at which it can generate it, and "if we can save some money by purchasing power, we do," McClure said.

Since October of 1997, the utility has sold $13.3 million worth of wholesale power, compared with $7.3 million for the same period one year prior. The number should increase even more in the coming year, McClure said.

"I don't have an assessment of what our off-system sales might be a year from now, but I will be greatly disappointed if we don't see a good increase as a result of this partnership," McClure said.

The agreement with TEA began Sept. 1. The company is owned by a group of municipal utilities in the southeast portion of the country, which is one reason it was chosen as the marketing firm City Utilities would use.

"We wanted to make sure the company we went with understood our concerns as a community-owned utility, and since this company was formed by three municipals, we knew they understood our business," McClure said.

McClure said CU has followed a "prudent and cautious approach" to selling its wholesale power. The utility only participates in "non-firm" deals, meaning that it can end a deal if it needs the power for its own system.

"Our priority continues to be here in Springfield. We know we've got to meet that need first," McClure said.

Selling its off-system power helps the utility's power-generation system to run more efficiently, McClure said. By generating more power, the system stays closer to its peak load. The system has a peak generating capacity of 700 megawatt hours and reached a peak this summer in July of 665 megawatt hours, McClure said.

The Energy Authority also appealed to CU as a marketing partner because TEA does a great deal of business in the southeastern United States, especially in the Florida market, which has a wintertime peak energy use, as opposed to the Springfield area's summertime peak.

TEA will market City Utilities' off-system power 24 hours a day, seven days a week, McClure said.

Where deals to sell excess energy were done on a daily or weekly basis before, TEA will be striking agreements with power companies as frequently as by the hour, McClure said.

CU has already conducted a few deals using the new marketing company on a test basis, McClure said.

The need for retaining a company like The Energy Authority was identified by the utility's internal committee on restructuring and deregulation of the electric industry, said McClure, who chairs that committee. Selling the wholesale power is just another way of preparing for deregulation of the retail electric industry.

"We have to continue to consider that, when restructuring occurs in Missouri, it could mean loss of revenue for the utility; it could mean some significant changes for us. Getting this agreement started now puts us in a better position when those changes start to occur," McClure said.

TEA is paid a percentage of what it sells for CU. The commission is a rolling percentage that starts at 10 percent of the first $25,000 worth of power sold, and ranges to 3 percent once the price surpasses $125,000.

"It's critical for all utilities with generation capability to look at how to make their systems run more efficiently and at how to make this benefit them once restructuring begins.

"When restructuring starts, it is likely these utilities will lose customers, and you have to make that cost up somewhere or it drives up costs for everyone, otherwise," McClure said.

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