2410 Summary

This chapter presented information on the changing world of the utility industry in the new millennium. Starting in the 80's with gas deregulation and the passage of the Energy Policy Act of 1992 for electricity, the method of providing and purchasing energy was changed forever. Utilities began a slow change from vertically integrated monopolies to providers of regulated wires and transmission services. Some utilities continued to supply generation services, through their unregulated enterprises and by independent power producers in the deregulated markets while others sold their generation assets and became "wires" companies. Customers became confused in the early stages of deregulation, but by the end of the 1990's some became more knowledgeable and successful in buying deregulated natural gas and electricity.

In the early 2000's, difficulties have developed in the deregulated utility arena. California rescinded deregulation (except for existing contracts) after shortages, rolling blackouts and price increases sent the utilities into a tailspin. The great blackout of 2003 raises concerns about the reliability of the transmission system. And the loss of regulated rates provides more challenges to customers and their consultants. However, many customers continue to participate in the deregulated markets to obtain reduced (or stable) prices, reduce their risk of big price swings and incorporate energy reduction programs with energy procurement programs.

Another result of deregulation has been a re-examination by customers of outsourcing their energy needs. Some customers have "sold" their energy systems to energy suppliers and are now purchasing Btus instead of kWhs. The energy industry responded with energy service business units to meet this new demand for outsourcing. Performance contracting and energy system outsourcing can be advantageous when the organization does not have internal expertise to execute these projects and when other sources of capital are needed. However, performance contracting and energy system outsourcing is not without peril if the risks are not understood and mitigated. Before undertaking a performance contract or energy system outsourcing project, the owner or manager first needs to define the financial, technical, legal and operational issues of importance. Next, the proper resources, whether internal or outsourced, need to be marshaled to define the project, prepare the Request for Proposal, evaluate the suppliers and bids, negotiate a contract and monitor the results, often over a long period. If these factors are properly considered and executed, the performance contract or energy system outsourcing often produce results that could not be obtained via other project methods.

Understanding Outsourcing

Understanding Outsourcing

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