N.H. manufacturers learn to live with, and reap benefits from, deregulated electricity market
It's only been since about 2006 when companies large and small got out of their comfort zones and began to take the plunge into the competitive energy market
Commercial electricity deregulation in New Hampshire has meant many things to many people involved in the complex system of energy purchasing and delivery. But for Herb Parkhurst, facilities manager for New Hampshire Ball Bearings, deregulation has created a level of certainty unachievable before deregulation began taking hold around 2006 – certainty for budgeting and certainty in savings.
“I estimate we have saved more than $750,000 since 2007,” said Parkhurst, who oversees operations at the company’s Laconia and Peterborough plants. More than $500,000 in savings has been realized at the Peterborough facility, which has the highest electricity consumption.
The practical savings aspect of what the company has done, he explained, can’t be overestimated.
“We didn’t have any major capital investments to make,” Parkhurst said. “It was real money on the table that came from just basically paying attention.”
Commercial electricity deregulation in New Hampshire has been on the books for a little more than a decade, but it has only been since about 2006 when companies large and small got out of their comfort zones and began to take the plunge, like New Hampshire Ball Bearings.
“We believe in the inherent value in having competition. The free market should allow users and suppliers to decide the market for pricing rather than regulators,” Parkhurst said. “In a deregulated market, you get to set your pricing, and from a risk-management perspective, you know what you are going to pay for how long. For planning purposes, that’s a huge value.”
The first stirring of legislative-mandated deregulation in New Hampshire came in the late 1990s.
Tom Withka, managing director of Usource, an energy adviser and broker based in Portsmouth — an unregulated subsidiary of the electricity and natural gas utility Unitil Corp. — has worked with deregulated energy products since 1984. He said that it was hard to develop any type of momentum due to the major economic impact of the September 11th terrorist attacks and the economic slowdown that followed. But when the housing industry-driven economic boom of the last decade took hold, it was also for a time for major convergence: businesses looking to cut energy costs, thousands of energy brokers seeking deals and suppliers looking to expand their market share.
Deregulation, which decoupled power generation from supply, has totally upended the traditional relationships between residential and commercial consumers and utilities (Public Service of New Hampshire and Unitil are the two largest). All rates were set by regulators. Now the utilities have more infrastructure functions (billing, transmission) than ever before and the biggest competition takes place between regional and national suppliers through contracts negotiated by brokers that may or may not be located in the state. (The exception is PSNH, which still has power-generating capabilities.)
While market wisdom may be that energy deregulation is an unstoppable wave, it’s not. In fact, New Hampshire is in the minority – so far, only 18 states have taken part in various stages of energy deregulation.
“It’s a phenomenon of areas and states with much higher energy rates than the national average,” Withka said.
Furthermore, though the number is rising, by the end of 2011 only 60 percent of large businesses and 11 percent of small businesses in the Granite State bought energy through a third-party supplier.
Usource works with over 1,300 clients in 18 states. (In New Hampshire, they include New Hampshire Ball Bearings, Lindt, New Hampshire Public Television and firearms manufacturer Sig Sauer). Its main role for most is acting as an energy adviser. Withka said saving money and providing more certainty are the common threads shared by the firm’s diverse clientele.
Withka, who previously was an energy analyst with Sprague Energy, said he believes that New Hampshire has done an overall good job in finding its way into the brave new world of deregulation.
“In the old system, energy costs in New Hampshire were very high for a very long time,” he said. “The Public Utilities Commission agreed with legislators that it was important for deregulation to benefit businesses and help them save money. It’s a fact that it (deregulation) has lowered costs and folks can look at energy supplies and do what’s important from their personal perspective and have an opportunity to save money.”
‘A huge difference’
The needs of Sig Sauer serves as test case of the complex deregulated market. Its new plant at Pease International Tradeport is serviced by PSNH while its other facilities in Exeter and Epping are serviced by Unitil.
Jeff Chierepko, Sig Sauer’s director of facilities, is involved in monitoring the energy market and is the company’s day-to-day energy manager. He oversees three contracts, including one recently reached to buy energy from TransCanada to power the Pease facility that will cut an estimated $192,000 from the company’s energy budget.
When Sig Sauer’s Pease facility first opened, it was not using enough energy to give it the bargaining power needed to secure that contract. But once the facility started ramping up production, it became attractive.
“A few cents can make a huge difference,” Chierepko said. “You would be foolish not to (have a third-party supplier) because it’s so common now.”
Deregulation does come with complications. While there is security for one- two- or even three-year contracts, there is also the desire to gamble short-term and potentially save even more.
“I have 29 people (brokers) banging on my door, running scenarios for us,” Chierepko said. “You have to do your research to determine what length contract works. You don’t want to get too greedy and take the risk of saving $30,000 without hedging against natural disasters or natural gas price hikes.”
He added that while deregulation offers the promise for businesses to generate their own energy (which is what the University of New Hampshire chose to do), there are still too many regulatory hurdles that prevent it.
“You really can’t make cogeneration work as long as you have to pay transmission and stranded costs (that the larger utilities do),” he said.
Parkhurst said he has attended seminars and subjected himself to a steep learning curve to become the house energy analyst at New Hampshire Ball Bearings.
“We take a holistic view to what’s going on. I have an annual energy savings goal I have to live up to. We manage not just what it costs, but how we use energy,” he said.