What about users buying at wholesale

Market volatility seen since last year's hurricanes has shown that the wholesale portfolio model for buying power works
well in an unpredictable market, Scott Helm told us yesterday. He's president of American PowerNet, a Wyomissing, Pa, firm that helps large industrial and institutional customers buy power directly in the wholesale market.

Wholesale customers can typically save 5 -10% head-to-head over retail prices, Helm noted. Yet flexibility might be the bigger
advantage from his portfolio-buying model. Buying at wholesale lets customers split up loads over varying contract lengths -- something you can't do at retail, he reminded. It spreads risks and doesn't put customers fully in or out of the market.

Retail buying, though, forces customers into an all-or-nothing position, Helm noted. Layering contract lengths and load amounts gives customers a better chance to respond to falling prices, he explained. Clients can take shorter-term deals for smaller amounts of load when prices are high. They're more nimble to react to market dips with those shorter pacts.

The portfolio models give customers a chance to lock in some load at lower prices while keeping the rest on shorter deals for the possibility of even greater price drops. That's where the model really shines, Helm observed. Wholesale pacts can range from five year deals to seasonal on-peak positions and anything in between, he told us.

Many customers are most comfortable with one- to two-year deals for about 25% of their load. The wholesale model unlocks value from the ancillary services market as well, Helm explained. Customers can actively manage congestion risk to get the benefits of auction revenue rights (ARRs) -- a financial tool to hedge congestion. Retail customers typically don't get the benefits of congestion rights associated with their load, he noted. More customers are buying at wholesale, Helm told us.

He thinks it's because they are more familiar with the retail model and understand where marketers get their power and how power gets to their meters. Thus the wholesale market isn't a "scary unknown" anymore, he noted.

Reproduced from the September 29, 2006 issue of Restructuring Today with the permission of the publisher, GHI LLC
(+1-202-351-6880, www.restructuringtoday.com).