Public Sector Aggregation: Department of General Services
The California Department of General Services/Energy Assessments
(DGS/EA) has long been a leader when it comes to energy innovation
in the public sector. With the advent of electricity restructuring,
DGS/EA is once again testing the waters for ways state and local
government institutions and agencies can cut expenses and thereby
reduce costs associated with providing public sector services.
When the California Public Utilities Commission deregulated the
state's natural gas industry for large consumers in 1986, DGS/EA
responded by developing a natural gas aggregation program. Starting
with four accounts in 1987, the program has grown to include 110
customers and generated approximately $4 million in annual savings
in 1997. That figure represents a 16% average savings if compared
to the incumbent utility gas service. Among the local government
participants in this aggregation effort are the City and County
of San Francisco, and Alameda, Solano, San Joaquin and Kern counties.
DGS/EA also has an impressive track record with energy and water
efficiency projects. Over the past five years, DGS/EA customers
have saved $174 million in long-term energy costs. Unlike specialists
such as power brokers, consultants, electric service providers or
natural gas marketers, DGS/EA can offer a local government a wider
range of energy-related services with no up-front costs.
With the passage of AB 1890, local governments can, for the first
time, now shop for electricity under a "direct access" contract
with a power provider other than the current incumbent utility.
DGS/EA is recruiting local governments to join a statewide aggregation
program that would allow local governments to choose from an array
of power providers including two that offer green power products.
Challenge:
How can local governments take advantage of the expertise DGS/EA
has in shopping for energy products and reducing bills through energy
efficiency services within the context of developing a more sustainable
community?
Implementation Strategy:
DGS/EA can help local governments in three critical ways:
-
Aggregate the electricity loads of a city or county (and/or
its constituents) in order to use economies of scale to increase
any single local government's chances of getting the best bulk
purchase deal possible;
-
Act as an advisor regarding the complex and technical details
associated with purchasing power under a direct access program;
and
-
Assist local governments in administering a competitive bidding
process for new power.
Results to Date:
DGS/EA released a Request For Proposals for new electricity supplies
in the fall of 1997. DGS/EA then selected six firms to provide participants
in its aggregation program with direct access to power suppliers
other than the current incumbent utilities. Four of the companiesEnron,
LG&E Energy Marketing, Modesto Irrigation District and New Energy
Venturesoffer a full menu of services that include shopping for
electricity, schedule coordination, and billing and metering. The
two other companiesInternational Power Technologies and Teledatawill
provide billing and metering services only. All of these firms have
signed a Master Services Agreement with DGS/EA which enables local
government participants in the aggregation program to take advantage
of updated electricity price quotes generated by each energy service
provider on a quarterly basis.
DGS/EA subsequently determined it needed additional suppliers to
give its aggregation partners more product and service options.
It released another RFP in 1998 and in late May added three additional
companies to its supplier rosterNew West Energy, Commonwealth and
Edison Source. Local governments now have at least two suppliersNew
Energy Ventures, large hydro, and Edison Source, existing renewable
facilities, to choose from for "green" power products if they participate
in the DGS/EA aggregation plan. [See Renewable Energy: Valuing
Clean Power Benefits Fact Sheet.] Savings estimates for aggregation
participants range from 2.75 to 4.25% on most accounts. In a few
select cases, such as water agency accounts, savings may be as much
as 7%.
Lessons Learned:
DGS/EA has discovered that structuring bids that can leverage economies
of scale with enough flexibility for each aggregation participant
to have some choices, is tricky. So far, only a few local governmentsSolano
county being oneopted into the DGS/EA aggregation program. The City
of Berkeley is considering purchasing green power through DGS/EA.
It is expected that the DGS/EA aggregation program will aggregate
enough customers to total 2,000 MW in the 1998-99 fiscal year, a
total that represents one of the largest aggregation programs in
the state.
DGS/EA has also learned that shopping for bargains in today's restructured
electricity market is not easy. Indeed, DGS/EA asked its suppliers
to re-quote offers and prices this past spring because of various
conditions sellers placed on their product offers. Part of the confusion
stems from different pricing strategies. Some suppliers offer prices
for one to three or even five years. Some offer a "flat" price for
every hour of the day; others use formulas that share savings between
public agency and private seller; yet another option is "value-added"
pricing termsincluding discounts associated with installations of
energy efficiency or distributed generation technologies.
A local government seeking ways to reduce its electricity costs
or to respond to a community's desire to develop a more sustainable
energy system, may want to contact DGS/EA to learn more about the
other services DGS/EA can offer before deciding how to respond to
restructuring. In the realm of energy efficiency, for example, DGS/EA
can help a local government select and contract for services with
an Energy Service Company (ESCO).
DGS/EA can help local governments obtain low-interest loans for
energy efficiency projects and/or structure a repayment schedule
that can provide financially a net positive cash flow from annual
energy savings. DGS/EA can also perform preliminary energy audits,
energy project feasibility projects and help develop contracts with
service providers.
For More Information:
Department of General Services/Energy Assessments
(Doug Grandy)
717 K St., Suite 409, Sacramento, CA 95814
(916) 323-8777
fax (916) 327-7316
e-mail: doug_grandy@dgs.ca.gov
web site: http://www.dgs.ca.gov/oea
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