PURCHASING ELECTRICITY FOR THE CEMENT INDUSTRY IN REGULATED MARKETS AND DEREGULATED MARKETS By: P.R. Talluri, Energy One Abstract: Purchasing electricity for industrial users including coment plants in regulated markets is not that ‘complex. itis not that complex because the local utlily delivered the electricity and the customer paid this on a monthly basis. The situation became litle bit more complex as utiles introduced Interruptible, Real Time Pricing, Coincidental Peak and Non Coincidental Peak etc. All these new rales are a mutual Win for both utities and Industral users, Purchasing electricity for industrial users including cement plants in deregulated markets is very ‘compiex. Industrial customers have the abilty to purchase electricity from the suppliers oftheir choice in ‘competitive market. They have to know market participants, gas markets, electricity markets and their sage by the hour in advance to get the lowest prices. ‘The paper will discuss energy procurement in both REGULATED AND DEREGULATED electricity markets. History of the Industry: Competition is not new to the electric industry. Numerous local power systems were built not ong after ‘Thomas Edison constructed his fist generation and gistribution system in New York City in 1882. These: new systems were mostly neighborhood affairs were designed to provide street lighting and power for streetcars. As with any newly emerging technology, standards were few and regulations were non- existent. The result was a mishmash of mulile privately owned, isolated systems feeding only densely Populated areas. True competition existed because the customers in those areas had multiple suppliers from which to choose. As late as 1922 there were 3,774 electric ullties and some customers could hterally choose one of many lines along a single pole from which to take pawer. The relative price of ower was priced high enough to remain a luxury for most residential users; this competive pressure éencouraged rapid technological advancement. The electric industry was competitive but legally, economically, and technically unregulated. Unregulated competition became ruinous and the frst paradigm shit began to occur from unregulated competition to regulated monopoly, By the mid 1920s, 16 holding companies controlled 85% of the nation's electric industry. True trusts were formed out ofthe numerous and duplicative systems, and the abuses that trusts can bring soon followed, Elaborate holding company structures were developed that were used to sell fictitious services, demand ‘unreasonable prices for real services, transfer assets from over priced power to paper subsidiaries and to cheat small investors with watered-down stocks. In 1928 the US Senate ordered the newly formed Federal Trade Commission to investigate the electric Industry. After many years of debate and an &4-volume report, Congress passed the Federal Power Act ‘of 1935 (FPA) and the Public Utity Holding Company Act of 1935 (PUHCA). The FPA formed the Federal Power Authority, which later was renamed Federal Regulatory Commission (FERC). The FPA. granted federal regulators authority over interstate transmission, which was later determined to be al transmission and wholesale power transactions. PUHCA gave the newly formed SEC the authority to restructure and regulate the electric Industry through tight control of utility asset acquisition and security ‘sales. More importantly the FPA and PUHCA signaled the second major paradigm shift in the industry ‘rom unregulated monopoly to regulated monopoly. 0-7803.8263-3/04/517.00 © 2004 IEEE: “{As the post war country grew, so did the utity industry. For the most part, the growth of an investor ‘owned utility, which makes money for ts shareholders through capital investment, parallels the growth of its load. And between 1920 and 1970, the use of electric energy doubled every 10 years. The period between 1935 and mid 1970s was the golden age for electric utlties because growth was steady, and Prices either grew only with inflation or actually decreased on a nominal basis, Because prices remained low, there was relatively litle need for replacing the regulated monopolies with a compattive market, Why Regulate? ‘Autlity is a natural monopoly as the Industry is: Capital intensive Has economies of Scale Duplication of facilities Itis an essential Service Figure 1: Regulated Electric Utity Service Structure Electricity Procurement in a Requlated Market Reducing electricity costs can be accomplished with the following: Understanding the electric industry Obtaining cost data on a per unit basis ofthe electricity purchased % Obtaining Necessary Utity and State Items-Tariff Schedules from utlitylregulatory body 2Complete taritf or rate schedule Experimental rate schedules Off-Tarif schedules Rebate programs schedules Understanding the Electric Industry tis very imperative to understand the electric industry and obtain the unit cost data for electricity Purchased currently Complete Tariff or Rate Schedule: ‘A complete tarif or rate schedule covers al rates, terms and conditions approved in a rate case, The: tariffs or schedules can range from several pages to several hundred pages. All data relating to Customer rates, costs, tetms for service etc., are included. Complete tariff or rate schedules remain in effect until a new rate case is filed and approved by the appropriate regulatory agency. ‘A-complete tariff or rate schedule should contain the following items: ‘Complete list and expianation of all available customer rates Complete list of all tems that impact rate costs Altemative rates that may be available on a ‘customer request’ basis for certain customer classes Information on ‘special rates that may be available under certain conditions ‘Complete explanation as to how all the cost components of utlity user are measured applied and charged Use the tariff or ate schedules to determine areas of cost reduction as follows: ‘+ Hfrates schedules other than the ones being used, compare these rates for last 12 months for cost reduction + If voltage level discounts are available evaluate the available savings ‘+ futility bills for KVA or KW determine if you are penalized on your current billings ‘+ Ifelectic blings include demand component (kW) request a demand profile, both digital and ‘analog. This may identify high peaks that can be reduced at a reasonable cost through the use of a basic energy management system Experimental Rates: Experimental rates are not normally contained in the complete taf or rate schedules as they are ‘developed on an experimental basis by ulities and not for any customer class, ‘These rates are not available from all utites but if they are available they can be @ source of potential cost reduction. If an ‘experimental rate is successful, then the next step is to include this in an ‘optional classification and then toa ‘mandatory’ classification, It these types of rates are available, consumers must determine if any of them are applicable to their usage characteristics. Off-Tariff Rates: (Off Tariff rates difer from base tariff in how they are developed and applied. These rates are negotiated between the utility and a specific customer. They aro a least intially discriminatory and are generally applied to large customers with large Ioads or unusual use characteristics. Establishing an offrate schedule is at best a long procedure. First, the utity and regulatory agency has to be convinced of the need for a rate of this type. Secondly, the other utily customer may protest 25 this a