Must I? Can I? Should I? How Do I? - The questions (and answers) in buying electricity

With ?contestability? in the retail electricity sector already phased in across the eastern seaboard, and some form of retail competition in place or planned in all jurisdictions, every one of Australian Convenience Store News? 21,000 readers will find something useful in this feature.

With ?contestability? in the retail electricity sector already phased in across the eastern seaboard, and some form of retail competition in place or planned in all jurisdictions, every one of Australian Convenience Store News? 21,000 readers will find something useful in this feature.

First, some clarification.

For each location there are two types of electricity retailer ? your default retailer (the one with the franchise over your area) and the others (usually with a franchise over another area). To illustrate, the following table shows the network area and retail markets for some of the energy retailers featured in this article.

?The default position for all customers is the regulated (default) tariff through their network operator,? says Gino Versace, Head of Sales NSW/ACT, EnergyAustralia.

?People are used to dealing with their local electricity company and it is taking time for them to get used to the idea of competitive offers.?

However, as Ramy Soussou, General Manager Retail Sales, Country Energy, points out: ?Deregulation has provided competition, and competition is driving innovative ways of helping customers?.

RETAILER	NETWORK AREA	RETAIL MARKETS
ActewAGL	Retail	ACT ACT, south-east NSW
Country Energy	Coastal and regional NSW	QLD, NSW, ACT, VIC, SA
ENERGEX Retail	South-east QLD	QLD, NSW, ACT, VIC
EnergyAustralia	Sydney, Central Coast, Hunter	ACT ,NSW, VIC, SA
Integral Energy	Sydney?s Greater West, the Illawarra, Blue Mountains and the Southern Highlands	NSW, VIC
TRUenergy	Not a network provider	VIC, SA, NSW, ACT, QLD
Western Power	WA	WA

Who?s Eligible?
	Minimum annual usage to be eligible to negotiate market contract with electricity retailer of choice	Maximum annual usage to be able to remain on default tariff with default retailer
QLD	100 MWh (Megawatt hours)*	No limit
NSW	No limit	160 MWh+
ACT	No limit	160 MWh+
VIC	No limit	160 MWh+
TAS	N/A (contestability to commence 1 July 2006)	N/A
SA	No limit	160 MWh+
WA	5.7 kW (load) +	N/A
* Most service stations, convenience stores and other retailers operating 24/7 will use at least 100 MWh per year.
+ 160 MWh (Megawatt hours in usage) equates to about $16,000 in NSW; $20,000 in Victoria.
5.7 kW (kilowatts in load) equates to about $8,000 in WA.

If your power usage exceeds the maximum permitted to remain on default tariff (for example 160 MWh per year in NSW, ACT, VIC and SA) then you have no choice ? you must negotiate a market contract.

If your power usage does not exceed that maximum, you can remain with your default retailer on the default tariff under a standard contract with terms and conditions regulated by a State regulator. But, in most jurisdictions you do not have to, because you have the opportunity to negotiate a market contract with the retailer of your choice.

Negotiating a market contract is the focus of this feature. Most of you will be eligible (or compelled) to move to a market contract and many of you will have done so already. Convenience stores that operate 24/7 tend to be relatively high users of power due to the demands of refrigeration and air-conditioning.

If you are still not sure of what you can and must do, contact the electricity retailers that supply to your area or your State regulator. Their web addresses appear at the end of the feature.

The answer to ?Should you?? is a bit more complicated. For example, in the ACT the default tariff is nearly three times higher than market tariffs, whereas in the Western Australia many businesses have stayed on the default tariff which has not increased, not even for CPI, since 1991. You will need to weigh up the pros and cons of a market contract compared to your regulated contract. Keep in mind, however, that regulated prices may not be forever, and deregulated prices have been increasing for the past couple of years. Like petrol, they are market prices they could move either way.

Coming to Terms

Most small business electricity contracts are for a term of between two and five years. That means you can lock in the energy component of your electricity bill for that period.

?Electricity retailers usually do not contract for more than five years because they have to wear the fluctuations in the wholesale price,? says James Shaw, Business Segment Manager, Ergon Energy.

Like any other commercial contract you are bound by the terms and conditions of the contract until it is terminated at expiry. Early termination could mean fees up to $350. Other items to look out for include payment terms and security deposits. Everything is negotiable.

Although you should have the opportunity to reconsider in a cooling-off period, it pays to do your homework and make sure you understand every aspect of the contract before you sign.

?You need to do your homework before you start negotiating,? says Ray Cao, Marketing Manager Energy, ENERGEX. ?A quote may have an expiry date because the wholesale market moves and the offer reflects the market.?

Also ask whether you can take your contract with you if you move premises.

?Assuming you move within the same state and have a similar consumption, most contracts allow for the retail supply to be changed from one account to the next if you move premises,? says John Carroll, Business Development Manager, Integral Energy.

Although you can lock in a tariff there is more to the price of electricity that the price of the electrons.

Apples and Apples

When talking to potential electricity providers, make sure they are talking ?apples?, so that you can compare their offer with other ?apples?.

Your electricity bill has four components:

1. The raw energy cost that makes up about 45% of the total. It is the tariff for this component that electricity retailers are offering you.
2. The network cost that also makes up about 45% of the total. This pays for the distribution network (the poles and wires). This tariff is set by government.
3. The cost of metering that makes up about 5% of the total; maybe more if you have a time-of-use meter.
4. Market charges account for another 5% and cover payments and levies to government authorities ? all the acronyms (NECA, NEMMCO, RECs, GECs (in Queensland) and NGACs (in NSW)).

You can negotiate 1) and 3), but not 2) and 4)

Sometimes these components are not separately quoted. For example, RECs and GECs (which can be fixed or variable) may be included in the raw energy quote. The network charge may not be straightforward either.

?Some customers do not realise that the network charge is passed on to consumers and the electricity retailer does not take a margin,? says Ramy Soussou. ?But, we make sure the customer is on the correct network tariff.?

Even though the network tariff is fixed, the amount on your bill depends on consumption and the peak load. This means you can minimise this part of the cost.

?You can reduce this cost by lowering the spikes that can be caused by faulty equipment,? says James Shaw.

You really need to consider the overall total electricity cost for any contract offered.

?To get the best possible price provide as much information as you can, including information that can be used to predict your future energy use patterns - like lease patterns or planned upgrades,? adds Chris Fidler, Head of Business, TRUenergy. ?The better the information, the better the deal.?

Mr Fidler also advises that you make sure the offer is ?firm to volume?, that is, if your consumption goes up or down, your tariff does not.

Prices, Peaks and Profiles

The process of deregulation started with high-volume customers - but it is not size that really matters. To an electricity retailer, it is your load profile that is important. For example, across the network the peak load period in summer is between three in the afternoon and seven at night when everybody goes home and puts on the air-conditioner. Electricity retailers can face wholesale prices of thousands of dollars per kilowatt-hour, even if only for very short periods of time. That is why they love convenience stores. If you are operating 24 hours/7 days your profile is smooth - and smooth is good - for the electricity tariff as well as the network charge.

?Businesses with a good load profile can use this to their advantage in obtaining a competitive price,? says John Carroll.

Depending on the level of consumption it may pay to have a time-of-use meter installed. Then, you can negotiate different tariffs for different periods ? peak, shoulder and off-peak in New South Wales; peak and off-peak in other States. In Queensland, to be on a market contract you must have a code-compliant meter that reads power usage every half hour and includes a communication device to send the readings to the retailer every day.

Even if you are on the default tariff you can still use a time-of-use meter to manage your usage around these periods. The future is ?smart? metering, also called ?interval? metering.

?Interval metering allows ?real-time? pricing,? says Chris Fidler. ?Then, you can negotiate a lower tariff if you are prepared to take some of the price risk.?

These meters are being installed across Victoria between now and 2008, and are likely to be rolled out in all States over the next few years. EnergyAustralia is installing them across its network including Sydney, the Central Coast and Newcastle.

?We are currently installing them for customers using more than 40 MWh of power per year, and will then install them for customers using more than 15 MWh,? says Gino Versace.

Even if you do not wish to go to the extent of real-time pricing, these smart/interval/time-of-use meters will give you an intimate understanding of your load profile and this could turn out to be a powerful management tool when negotiating with electricity retailers and managing your electricity consumption.

As the changeover to smart metering progresses you need to be aware that, in some jurisdictions, once you have installed a smart meter you cannot go back to a flat tariff. More broadly, you should also check whether, in accepting a market contract, you are precluded from returning to the regulated default tariff.

Electricity retailers use the term ?demand side management? to refer to arrangements they have with customers to turn off equipment during very high peaks (when the spot wholesale price spikes) in return for a bill reduction. This has only been worthwhile if you are a big user of power, but technology is making it increasingly viable for small to medium sized enterprises.

?We can email customers and offer to trade their energy for a reduction in their bill,? says Ramy Soussou. ?In the future, time-of-use meters will accept messages offering compensation if you turn off certain appliances and imposing penalties if you do not. An alarm will sound and you will need to make a decision of whether to pay for the peak or reduce consumption.?

This is more likely to apply to big users of power, so smaller customers can rest easy and opt for a simpler approach.

?At present, particularly with low levels of consumption, not everyone will benefit from moving to a time-of-use tariff,? says John Carroll.

If this is all getting a bit too complicated you might prefer to keep it simpler. Rather than offering a fixed tariff in cents per kWh, EnergyAustralia offers a discount off the regulated tariff that applies in your network area.

?Our approach recognises that many small businesses do not have the time to evaluate a tariff,? says Gary Harris, Head of Sales VIC/SA, EnergyAustralia.

In New South Wales, the discount is up to 5% for both electricity and gas, depending on consumption, load profile and whether you opt for a combined gas and electricity offer. In Victoria the discount is 6% off electricity; 5% off gas, and in South Australia it is 7% off electricity and 5% off gas.

??Tariff-following? is easy for consumers as they can see what the market contract means to them,? says Gary Harris.

?The contract is a simple one-page form and can be signed up over the phone.?

In effect, this offer works like a large buying group, with EnergyAustralia buying on behalf of its customers. Buying groups are another option, as well as energy brokers (some may have relationships with energy retailers) and online auctions (you put your contract terms up for auction and electricity retailers bid for your business).

At some time beyond 2006 there may not be a default regulated tariff to discount. The Electricity Retailers Association of Australia (eraa) is lobbying for total retail price deregulation. That would mean every customer negotiating a tariff and no price caps.

?Some customers may be reluctant to enter the market, but it is important for them to research what options are available to them and to take advantage of lower prices and a better range of service while the offers exist,? says John Carroll.

With such divergent views from the specialists it comes back to you, the electricity consumer, to assess what offer suits you best. In making that assessment, remember that other things matter.

?Deregulation has meant choice, but also some confusion,? says Ray Cao. ?You need to decide what sort of relationship you want with your supplier and how important is service.?

?We recommend customers check out what electricity retailers have to offer and then short-list to about three experienced providers that can meet their needs,? adds Chris Fidler.

Other Things Matter

If service is important, then you may want to have a single point of contact. A number of electricity retailers specialise in the small to medium sized business segment with one-on-one account managers for all business customers. Your account manager should be your advocate and a business partner who works with you to manage your electricity consumption through the term of the contract.

Modern technology means that electricity retailers have a lot of useful information. This should be put to good use on your behalf.

?A good retailer provides load profile reports that identify where you can reduce costs by reducing load - by being more efficient or moving load to smooth out your profile,? says Tom Barry, Commercial Sales Manager, ActewAGL.

?At TRUenergy, it is part of the premium account management service that comes with the contract. The account manager is there to assist,? says Chris Fidler.

A combination of monitoring consumption levels and patterns and regular contact can mean significant savings.

?We can reduce electricity bills by 10% to 15% through a market tariff and energy management advice,? says Ray Cao. ?For example, we recently saved a small business customer $14,000 by noticing load spikes then using technical experts to find the equipment causing the problem. Bringing these situations to attention is the account manager?s role.?

The other way to make sure you are doing all you can to minimise your electricity bill is to arrange an energy audit. This can range from a simple telephone interview and discussion to a full business efficiency review. It might simply be to find out that automatic doors opening unnecessarily can add significantly to your cost of power.

Country Energy is developing sector-specific newsletters with tips on how to save on energy plus special deals for its customers, including one specifically for retailers. At the other end of the scale, Ergon Energy?s utilities audit by a qualified electrical engineer and covering electricity, gas and water costs over $2,000 but they guarantee savings of at least 5%. Safety is also important and you should be able to arrange power checks for a reasonable price.

Western Power offers security lighting as part of its energy services to customers.

?Power Watch is a one-stop shop for security lighting and includes design, installation, running costs and maintenance,? says Russell Mitchell, Manager Marketing, Western Power.

?We install the equipment for our customers, as well as supply the power.?

Electricity Plus

The focus of this feature is electricity, but most providers also supply gas and can offer some bundled packages. Some even provide internet services. ActewAGL takes it all a few steps further, offering the full range of utilities ? electricity, gas, water, sewage and telecommunications. You might not want to get it all on one bill though unless you can negotiate monthly payments.

To attract small business customers, some electricity retailers offer incentives.

EnergyAustralia extends its small business discounts to the residential accounts of employees. For example, the three-year contract for employees includes the discount off the default tariff for electricity and gas, as well as a free rewards card which includes discounts with other retailers such as supermarkets, clothing stores and movie theatres. This is similar to the rewards package that is offered to business customers through strategic alliances with Amex and Qantas Frequent Flyer.

If rewards cards are not your thing then maybe you are looking for more altruistic offers such as green power.

Green Energy

There are different shades of green and this is reflected in the associated costs and benefits. All electricity retailers offer the option of ?green? energy.

?Green Power gives you the opportunity to contribute to the generation of electricity from renewable sources and can provide a distinct marketing edge for some businesses,? says Chris Fidler.

You can choose ?natural? energy such as wind energy or ?friendly? energy, sometimes called eco-friendly or earth-friendly, generated from sources that either reduce or do not generate greenhouse gases ? hydro, bagasse, and landfill. You could also consider installing solar power. Natural power is more expensive than friendly power. The green energy tariff also increases with the level.

Over and above feeling good about doing the right thing, you may be able to promote your business as environmentally-friendly. To do this there is usually a minimum percentage required. To be 100% green could double the energy tariff, but in some areas that could be an important marketing tool.

?Businesses willing to invest in green energy should opt for an accredited Green Power product as this is their guarantee their energy will be sourced from recognised renewable energy sources,? adds Chris Fidler.

?It will also give you the right to display the widely-recognised green ?tick of approval? logo to customers.?

RETAILER	WEB ADDRESS
ActewAGL Retail	www.actewagl.com.au
AGL Energy Sales and Marketing	www.agl.com.au
Aurora Energy	www.auroraenergy.com.au
Country Energy	www.countryenergy.com.au
ENERGEX Retail	www.energex.com.au
EnergyAustralia	www.energy.com.au
Ergon Energy	www.ergon.com.au
Integral Energy	www.integral.com.au
Origin Energy	www.originenergy.com.au
TRUenergy	www.truenergy.com.au
Western Power	www.westernpower.com.au