With hospital energy costs at over $2 per square feet annually, and as much as 8 percent of operating expenses, it makes sense to look for ways to curb consumption and cut electric bills.

If you haven’t already, you might want to look into your state’s electric industry deregulation status. If yours is a deregulated state, you may have the opportunity to realize significant savings over your public utility company’s rates. If not, your state may be in the process of restructuring its electricity market to allow for competition.

As of February 2003, there were eighteen states that had deregulated their electric industries. These include: Arizona, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas and Virginia. A map and detailed information on the status of state electric industry restructuring activity is available at the Energy Information Administration e.gov/cneaf/electricity/chg_str/regmap.html and http://www.eia.doe.gov/cneaf/electricity/chg_str/retail_access_timeline.html.

According to David Hernandez, Chairman and CEO of Liberty Power, "the process of deregulation differs in each state, but the government defines how the pricing should be structured, how taxes will be affected, and they’ll put incentives in place to encourage competition, like tax rebates, or fixed pricing for incumbents so that new entrants have a chance to price below them."

Liberty Power (Fort Lauderdale, FL) is a national supplier of electricity to business and government entities. The company is currently licensed by the Public Service Commissions of New York, Texas, Maryland and Washington, D.C. and by the Federal Energy Regulatory Commission. Liberty has government customers such as the U.S. Department of Defense, Department of Homeland Security, Social Security Administration and the Veterans Administration, along with companies such as New York Life, JC Penney, Circuit City and Lowe’s.

While Liberty does not currently have any healthcare facility clients, it does provide service to government agencies and others with mission critical operations including the City of Pasadena, a major refinery area.

While savings experienced by a typical Liberty Power customer will vary according to region and energy use, Hernandez notes that "savings could be up to 20% for customers who have locked in fixed pricing in markets where electricity prices are rising."

He explains, "The key to reducing electricity costs is in understanding how and why electricity prices go up and down. Electricity is a commodity in that it’s fungible (one electron is the same as the other). Like Grade A Coffee Beans, Grade A Oil, any other commodity brand does not change the grade as long as it meets certain standard criteria. One kilowatt hour is the sames as the other. As with other commodities, the price of electricity is affected by supply, demand, and factors that create changes in either, like weather, availability of natural resources to generate electricity, etc. We closely watch changes in those factors and purchase electricity when the market is low. We can also work with clients to buy electricity more effectively based on their usage pattern."

Hernandez offers the example of a national retail chain located in Maryland, whose market had recently opened up to competition. "The rules called for setting the utility’s rates based on market prices and not on traditional subsidies. In July, the retail chain saw their electricity costs soar when compared to the previous month, a change for which they could not have budgeted. The customer gave us certain parameters around which to structure an electric service solution.

"First, they wanted cost-savings off the utility. Second is price, even though they value purchasing power from Hispanic-owned companies, they were not willing to pay a premium for non-renewable power. However, they were willing to pay a premium for green power. Finally, they were willing to sacrifice some savings for green power but not pay more than they were paying with the utility. Despite the recent spike in wholesale power prices, we were able to offer the customer a solution that meets all the criteria."

Liberty differs from a utility in that it doesn’t own power plants or transmission lines, but rather operates as a retail electricity provider. "We purchase electricity at the lowest possible price and provide every customer with an affordable, reliable power supply," explains Hernandez.

He makes an analogy to a typical retail store that who does not make its own merchandise. "Electricity retailers are similar: we don’t generate or transport electricity, but we do package electricity and price it in ways that are beneficial to our customers."

Savings on electricity through companies such as Liberty can be achieved by structuring the purchase and pricing of electricity most favorably for each customer. For instance, fixed pricing is effective in areas where prices are rising, and the company can help customers lock in a lower rate for the entire term of their contract. "We also set our fixed rates below those of the utilities, so customers definitely benefit from switching," adds Hernandez.

Additional savings opportunities offered by Liberty include index pricing in which the company pegs its prices to the market price of wholesale electricity, in order to be able to price the retail price below the utilities because of the lower cost structure.

In the opposite scenario where prices are predicted to drop, variable pricing allows customers to benefit from that decrease in cost.

When available, load management programs give customers who’ve chosen variable pricing the flexibility to set a strike price, or the highest price they are willing to pay for electricity ideally. "If prices rise above that price, we’ll contact them to suggest they curtail their usage for a period of time. If they are able to do so during that time, they receive a savings pass through – in other words they split the savings with Liberty Power, and there is no penalty if they are not able to curtail their usage," said Hernandez.

Because deregulation is a new concept in many markets, Liberty is often charged with the job of educating customers and serving as an energy consultant, not just a provider.

Hernandez specifies that his company is "not a trading desk masquerading as a power company. Some energy retailers have specialized more in trading financial products based on electricity: options, futures, etc. As a result, a large percentage of their revenues are from trading, not from delivering electricity service to direct customers. Every dollar we generate goes to supplying power to our customers, not to speculating on fluctuations in the energy market." HPN

Energy resources and Web sites

Listing of the Public Utility Commission Web sites for all states:
www.naruc.org/displaycommon.cfm?an=15. 

Energy Star: www.energystar.gov/

Environmental Protection Agency: www.epa.gov 

Liberty Power: www.libertypowercorp.com/