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ALFA's new program for utility/energy savings

January 1, 2007
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The Assisted Living Federation of America (ALFA), the largest national association exclusively dedicated to professionally operated assisted living communities for seniors, provides a variety of meaningful member benefit programs. In 2006, ALFA identified a new member benefit program to assist members in reducing operating costs: The Savings Solutions Program, offered and administered by Affiliated Power Purchasers International (APPI), LLC, which provides energy and utility consulting services.

APPI assists ALFA facilities in reducing electricity and utility costs by identifying, analyzing, negotiating, and structuring individual supply contracts. APPI's staff of engineers, tariff and regulatory specialists, financial and legal professionals, and utility consultants prepares, on behalf of member facilities, electricity and utility account and usage information for presentation to qualified suppliers. The consultants then analyze pricing, rate information and offers, and negotiate contract terms and conditions for each member location.

To understand how this program works to control facility utility costs, it would be helpful to review some of the basics of energy procurement.

Electricity Procurement

The deregulation of the electric utility industry began in the early 1990s, when open access to the wire system (delivering electricity to the commercial and residential users) was guaranteed by federal legislation. The primary objective was to increase competition in the generation and sale of electricity by allowing each state to draft its own rules and processes. Electric deregulation is now being implemented state by state over a period of years.

A deregulated electric industry looks and operates differently from the state-regulated monopolistic system. The typical electric company provides all the necessary components of electricity and is allowed to charge regulated fees for its services. In a deregulated market, the component of electric supply (50–75% of a typical electricity bill) is separated from the other functions performed by utilities. It is this supply component that is opened up to competition.

The three basic components of electricity supply are:

  • Generation. The actual production of electricity occurs at a power plant using coal, gas, oil, wind, water, or nuclear power. The cost of generating electricity depends on the cost of fuel, operational and maintenance costs, and other items. Many regulated utilities currently generate most or all of the electricity sold to their customers. The sale of the electricity is the part of the process that is being deregulated by each state.

  • Transmission. Electricity is transferred from the generating power plant to substations within a single utility's transmission network or to multiple networks involving several utilities. The Energy Policy Act of 1992 established federal guidelines mandating fair access to transmission networks. The regulated utility companies currently own these transmission systems. With deregulation, the owners of the transmission facilities will charge other suppliers for the use of their transmission lines.

  • Distribution. This component encompasses the delivery, servicing, and administration of electricity from the substation to the customer. It includes meter installation and reading, billing, connection to the electric wire system, and servicing of the utility's equipment and power lines that deliver the electricity to the customer. It is expected that most states will continue to regulate utilities' distribution of electricity, with rates set by each state's public utilities commission (PUCs).

Before deregulation, different types of customers were charged rates set by their state's PUC and not by the marketplace, from which utility companies were largely shielded. However, many utility companies will not exist at the end of deregulation. Mergers and consolidations will occur, and some companies simply will not survive in the newly competitive environment. Because market forces make some utilities unable to generate electricity at a competitive cost, they are unable to compete with the new supply companies that move into their service territories.

How ALFA members benefit from APPI programs. ALFA members located in competitive deregulated states, such as Delaware, Illinois, Maryland, New York, Pennsylvania, and Texas, can take advantage of alternate electricity suppliers for competitive pricing. Under this arrangement, the alternate supplier provides a new source of electricity, while the incumbent utility maintains its transmission and distribution. Choosing an alternate supplier often results in reduced electricity costs and budget certainty.

To participate in the APPI Savings Solutions Program electricity procurement service, an ALFA member provides one month's bill for all meters within all its facilities and then completes a Letter of Authorization (LOA) that allows APPI to receive account information directly from the member's current utility or energy supplier. That information is then entered in APPI's proprietary database. APPI analyzes the member company's usage, tariff, and pricing structures. At this point, APPI is in a position to seek alternative supplier options, analyze and compare those options, and recommend a savings solution to the member organization. APPI's experienced utility consultants educate the member, explain opportunities, and minimize the time the member needs to invest in the electricity procurement process.