OPINION: Managing Energy Challenges in an Era of Uncertainty
Bob Dickerman
Managing energy costs and supplies has never been easy. But over the past year and a half, Californians have ridden a roller coaster unlike any in our history.
Consider the situation in April 2000. Electricity rates were low and deregulation offered the hope they would sink even lower. Natural gas costs seemed reasonable and predictable. The economy was strong and expectations for the future were bright.
Then, the sky fell. Beginning in the summer of 2000, wholesale electric rates doubled, then tripled, at one point rising as much as 20-fold over April 2000 levels. Natural gas costs increased as much as five-fold. The threat of blackouts threatened to paralyze the California economy and drive industry to other states with more reliable supplies. The dot-com industry nose-dived, undermining confidence in financial markets and leading the way toward an economic recession.
For more than a year, energy consumers faced unprecedented anxiety over prices and supplies. Finally, good news arrived. This past summer, instead of the widely predicted rolling blackouts in California, we saw wholesale power prices and natural gas costs decline to pre-crisis levels. Power supplies became, for the moment, sufficient. Natural gas storage facilities are now packed to near maximum capacity.
Vital Issues
Energy price and supply security, however, remain vital issues, even more so now that we have been reminded , in the most violent of ways , just how exposed we are to forces beyond our control. We now know as never before just how vulnerable our nation’s energy supplies are to hostile forces.
Managing the energy challenge in today’s brave new world means ensuring not just the best bang for the buck but identifying and making critical investments that reduce exposure to a higher level of risk.
In September, the energy management job became tougher when the California Public Utilities Commission voted to suspend direct access, or “customer choice,” effective immediately. Their decision means customers no longer have the option to buy electricity directly from a generator or from energy services providers. Businesses must purchase their power as part of “bundled” service from the utility until further notice.
With limited options for tapping alternative suppliers, large energy users now must explore energy-efficiency and management options to control their energy costs. Smart management of facilities’ water, space cooling and heating, as well as natural gas and electric power needs, increasingly has become critical to surviving in a tight economy.
Firms Unprepared For Energy Market
Booz-Allen & Hamilton, a leading consulting firm, released the results of a survey of more than 500 large, mid-size and small firms around the country. They found that most companies are “wholly unprepared” to deal with, and many are confused by, the complexities of today’s volatile energy environment. When companies did achieve significant savings, the essential ingredient was the use of experts who understood the evolving energy markets.
In a volatile market, energy-efficiency projects that were once not economically feasible are now viable. Energy services providers are developing analysis and pricing tools that facilitate expedient turnaround of these projects.
The businesses who focus today on maximizing their energy efficiency will enjoy a safe harbor in the storm of unpredictable energy costs.
Dickerman is president of Sempra Energy Solutions, a subsidiary of San Diego-based Sempra Energy.
