UTILITY DEREGULATION CALLED SAVINGS ISSUE

CHRIS O'LEARY

SCOTTSDALE, Ariz. -- Retailers stand to gain major energy savings should the current regulatory climate continue to shift toward deregulation of the utility industry.

Deregulation of utilities, already a reality in the United Kingdom, could soon take root in the United States, empowering chains to bargain for more competitive costs, according to retailers and analysts here at the Food Marketing Institute's Energy and Technical Services Conference, Sept. 10 to 13.

Utility deregulation could represent the next crucial issue for supermarket engineers after the phaseout of chlorofluorocarbons, said Edward Mader, energy manager for Randalls Food Markets, Houston. "This is going to be as potentially important an issue as CFCs were for the last five years," he said.

"Get involved now with legislators," said David Noller, director of energy utilization for Ralphs Grocery Co., Compton, Calif. "If you wait, you will always be acting defensively."

At least seven state legislatures, for instance, are now investigating "retail wheeling," by which supermarket chains with stores in different regions and states could receive consolidated billing and pay one utility rate.

In addition, the Federal Energy Regulatory Commission is proposing a rule to allow consumers to purchase power wholesale from outside their geographic areas at a controlled tariff rate. Utilities currently can levy heavy transportation surcharges on consumers who wish to buy power elsewhere.

Such actions may be the first signs of a major deregulation of the utility industry that could equal the breakup of the telecommunications and natural gas industries, analysts and retailers at the conference said.

"We stand now at the forefront [of] a similar revolution in the electricity industry," said Charles King, president of Snavely King & Associates, a Washington-based consulting firm.

Deregulation in the United Kingdom has already enabled J. Sainsbury, London, to slash its energy costs by 26%, company officials said. Similar savings could result from a more competitive playing field in the United States.

U.S. utility companies are now guaranteed a core number of customers and can levy substantial fees on consumers who wish to purchase power elsewhere, King said. The result is often a noncompetitive, price-controlled marketplace.

"In Indiana, the average price per kilowatt-hour is 5.8 cents, but in Illinois it is 8.1 cents. This could not exist in the retail industry. You wouldn't get away with 8.1 cents across the board," he said.

J. Sainsbury said it faced a similar controlled structure before 1994, when the market for power generation was privatized for most of its stores.

While distribution of power remains a monopoly activity of regional-based electricity suppliers, Sainsbury can now choose from more than two dozen generators. The result has been intense bidding and reduced prices.

"Supermarkets like Sainsbury's are regarded by electric suppliers as prime targets and thus intense competition ensues at the time of contract negotiation," Peter Ibbotson, director of the store format group, said during a presentation at the energy conference.

Sainsbury uses a computer program to analyze the bids of all potential suppliers and determines the total annual cost of each bid to the business. It then encourages the three or four lowest bidders to reduce prices even more.

"Another advantage of group negotiations is we now pay for our electricity against a single invoice by direct debit each month on an agreed date," he said.

"Prior to this we received one invoice per store each month, which involved an army of clerical staff in processing and validating them for payment."

Sainsbury has been preparing for privatization for several years. It installed computerized meters to measure electricity consumption in all its stores, which, coupled with a number of new energy management programs, has gained the retailer an annual savings of 900,000 pounds, or about $1.4 million.

Information from the meter readers is compiled by a government monitoring service, segmented in half-hour blocks and electronically sent each morning to Sainsbury's corporate office.

"Our energy management team can review previous day's consumption in order to pinpoint trouble spots before the trail goes cold," Ibbotson said. Previously, the retailer had to wait six weeks for non-store specific energy use reports.

Sainsbury then generates reports for each store where excess consumption has been recorded, he said.

"The report tells the store manager via E-mail how much was wasted the previous day as a result of these excesses and how much in cash this would affect his annual profitability if it were to be left uncorrected."