SAFEWAY PROVIDES ENERGY EXPERTISE

JEAN THILMANY

SAN ANTONIO -- Choosing the right energy services company is one of the most crucial decisions a retailer makes in a deregulated energy environment. Not only are significant amounts of money at stake, but the market can change so rapidly that some energy services companies bidding for business may themselves go out of business before the process is completed.

Retailers need a good understanding of their electricity load profile, and need to clearly spell out what they're looking for in detailed requests for proposal, according to Randy McAdam, corporate maintenance and utility manager at Safeway, Pleasanton, Calif. McAdam discussed buying energy in a deregulated environment at the Energy and Technical Services Conference held here Sept. 27-29.

For supermarkets, utility costs are their second highest controllable cost after labor, McAdam said. Therefore, choosing an energy service company (ESCO) is "a big, big project," he said.

Independents need to be particularly aware of deregulation issues, said Ken Hopwood, director of store engineering and equipment at Certified Grocers of California, Los Angeles, in a statement.

Hopwood was scheduled to speak but could not attend. His prepared remarks were read at the conference, which was sponsored by the Food Marketing Institute, Washington.

McAdam outlined Safeway's process of shopping for an ESCO to help retailers who will be faced with similar searches as more states deregulate electricity. The retailer is headquartered in California, where electricity deregulation took effect in April.

Hopwood was scheduled to speak but could not attend. His prepared remarks were read at the conference, which was sponsored by the Food Marketing Institute, Washington.

McAdam outlined Safeway's process of shopping for an ESCO to help retailers who will be faced with similar searches as more states deregulate electricity. Electricity deregulation took effect in California in April.

When it became clear that the state would move ahead with deregulation, Safeway put together a committee to find a suitable ESCO. This should include employees who understand rate and pricing information and executives with authority to make financial decisions, he said.

Committee members needed to look at the retailers' energy consumption profile to have statistics to shop with, he said. This profile should include energy consumption at the supermarkets themselves as well as at company offices and distribution centers.

The next step was finding ESCOs to compare. Members of the Safeway committee read trade magazines, searched the Internet, and talked to the state's Public Utilities Commission to find reputable ESCOs.

"Few of the companies in California had already written deals, so we had to evaluate the qualifications of the people that worked there," McAdam said.

Safeway then put together a request for proposal using its energy profile information and sent it to 24 companies.

"If you don't have the staff to do this, it's one area where you really ought to get some help," he said. "We had a legal department at our beck and call, but smaller operators who don't have a legal department better get an attorney involved.

"We got proposals in that matched our RFP -- supposedly," he said. "They may have, in the view of the supplier. But in the view of the receiver they really didn't. Something that seems as easy as responding really doesn't seem to be that easy."

"This is the time the deal really starts to evolve," he said. "This is not a static process. It takes a lot of meeting time. But when you're dealing with the types of dollars we were talking about, it's money well spent."

Safeway eventually narrowed its pool of potential ESCOs to four and eventually chose one. Only two of the final four companies are still in business, McAdam said, citing the quick pace of change in this start-up industry. Billing, metering, and pricing issues must be worked out with the ESCO, he added, noting that Safeway bought its own meters to track energy use.

In April, Safeway began using the ESCO it had chosen, but the retailer didn't receive its first utility bill until September because of the governmental red tape the ESCO faced with billing issues.

"A good quality ESCO that will work with you and provide a lot of help," he said. "But you have to know how to get there."