Total energy (electricity and natural gas) end use costs in North America total approximately $400 billion annually; approximately $230 billion is spent by businesses on energy. Energy costs rank surprisingly high among business costs (as high as third for many businesses). Because energy costs are very volatile, and natural gas and electricity forecasting are difficult, the relative impact on business performance can be even greater. Energy procurement and supply management are very demanding, complex disciplines. Since the genesis of energy deregulation, regional, state, and local distribution territory markets have remained heterogeneous; prices are volatile; the set of suppliers and their offerings are regionally diverse; state and local distribution territory regulations and rules vary substantively; and all of these factors change with time. This is particularly challenging for businesses with many facilities in many states, for whom electricity costs and natural gas costs combined represent one of the largest line items in the budget. Furthermore, strategic energy management is not a core competency for most companies; consequently, it is often a part-time responsibility. Even companies that have a full-time energy manager find the challenges new and daunting, especially now that energy supply cost has become a significant aspect of a company's risk management strategy. Yet, as more power markets and natural gas markets deregulate and become competitive, the price of energy is expected to remain volatile and, over time, to see prevailing electricity and natural gas tariff prices rise to or above competitive prices. This presents opportunities for buyers to manage energy costs to their advantage and for suppliers to increase their market share. Yet, both buyers and suppliers need better information than what is readily available in order to find opportunities, to make decisions, and to manage risk effectively. Buyers need solid energy management strategies and straightforward processes to help them choose energy sources wisely. Suppliers need simple, cost-effective ways to present their offerings competitively and to acquire customers. The opportunities and challenges of energy supply management and procurement exist both in regulated and deregulated (competitive) markets, but they are magnified in deregulated markets. Managers responsible for energy procurement and supply management are usually less familiar with the deregulated markets, particularly electricity markets. The complexity and dynamics are especially substantial in markets that are in transition, as most deregulated electric power markets are. There are three steps in providing energy to end users, with slightly different terminology for gas and electricity:

Related Content (free subscription required) Recent whitepapers Energy Rises to C-Level Shedding Light on Energy Price Trends Prices Futures - Daily MarketTracker Current Spot - Selected hubs Free Monthly Market Summary MarketElert

Electricity	Natural Gas
Generation	Production
Transmission	Transportation
Distribution	Distribution

Historically, in regulated markets, energy consumers have been recipients of bundled service, where all three elements, along with other ancillary services such as metering, are provided as a package to the consumer by a single, regulated utility. In areas where deregulation is in place, consumers may opt for unbundled service. Unbundled service is typically expressed in terms of supply and delivery.

Generation is the production of electrical energy. Electricity generators typically use coal, natural gas, or nuclear fuel. Renewable ("green") resources-such as biomass, wind, and solar energy-are other fuels used in the production or generation of electricity. Natural gas production includes activities such as exploration, drilling, and storage. Transmission involves moving electrical energy between the generation source and local electric distribution systems. Electricity transmission occurs at relatively high voltages. Natural gas transportation involves the movement of gas long distances through interstate pipelines from the source to local distribution systems. In the U. S., the Federal Energy Regulatory Commission (FERC) governs interstate transmission and transportation while state regulator agencies govern most intrastate transmission and transportation. Distribution is the movement of energy from the transmission or transportation system to end-users. Compared with electricity transmission, electricity distribution is at relatively low voltages. In the U. S., distribution services are typically governed by state regulatory agencies. Delivery service is provided by the local, regulated utility. Distribution service is always included as a part of delivery. Transmission and transportation may sometimes be included as a part of delivery as well. Supply service always includes electricity generation and natural gas production. In some areas, transmission or transportation are also considered to be part of supply. Under deregulation, competitive suppliers-including, possibly an unregulated subsidiary of the local utility-offer supply service.

During the transition of energy markets to deregulation, the local utility company may be required to provide default service to customers who do not choose to or cannot receive supply from a competitive supplier. The cost of this service is referred to variously as the comparison cost, price to beat, cost to compare, or shopping credit. In selecting a supplier when default service is available, consumers should determine this comparison cost before evaluating and accepting offers form competitive suppliers.

A good analogy for energy supply services and their deregulation are found in telecommunications. Long distance service is analogous to energy supply and delivery service is analogous to local telephone service. Under deregulation, local phone service and energy delivery remain regulated and are provided by monopoly local utility companies regulated by state public service commissions. Long distance telephone and energy supply services are unbundled under deregulation, may be provided by competitive suppliers, and are generally regulated by federal agencies.

Natural gas supply in most states has been deregulated, particularly for business customers, for more than a decade. Consequently, they are relatively mature and sustainable. A map showing the status of gas deregulation in the US, although more focused on residential consumers, is available in the Department of Energy (DOE) Energy Information Administration (EIA) web site at http://www.eia.doe.gov/oil_gas/natural_gas/restructure/restructure.html. Approximately 72% of business gas expenditures are for facilities in deregulated states.

Electricity, or power markets began to be deregulated relatively more recently. Currently 16 states and the District of Columbia have deregulated their electricity markets. A map showing the status of electricity deregulation is available at http://www.eia.doe.gov/cneaf/electricity/chg_str/regmap.html. However, competitive activity levels vary within states that are deregulated.

The EnergyWindow PowerScape® energy market knowledgebase shows current state competitive electric market activity levels. Active sustainable competitive electric markets exist in approximately 12 states-most of them more highly populated and industrialized states-that account for approximately 49% of the business energy usage in the US.

Thousands of businesses have saved millions of dollars in deregulated energy markets. Even in California, nearly 10% of the business customers, more than 20% of the business load, switched suppliers in the first two years of deregulation in order to save money. They also isolated themselves, until the California assembly and public utility commission "reregulated" the industry, from the risk of high and volatile power costs. And many businesses still have choices in California that can make significant differences in energy costs. Approximately 20% of the business customers-40% of the business load-switched in Pennsylvania in the first two years of deregulation. And Pennsylvania remains an active competitive market. Many opportunities exist today in competitive energy markets.

And as the PowerScape map shows, many states are sustaining competitive electric markets; gas markets have been deregulated much longer and, consequently, are much more widespread.

At the same time, businesses cannot avoid significant energy risks. Businesses that opted not to sign agreements for alternative power supply and chose to stay with default service in California saw their electricity rates-already the highest in the nation-more than double. Nor were the largest regulated utilities, like PG&E, which filed for bankruptcy, safe havens from energy risks. On the other hand, many businesses that signed with Enron there and in other states faced possibility of their funds, and hands, being tied up in bankruptcy proceedings and having to find new service providers. During the same period, the price of gas has ranged from below $2.00 per million cubic feet to over $8.00. Businesses must understand and actively manage energy risks today, building a diversified natural gas and electricity portfolio.

EnergyWindow was conceived with a mission to provide energy users and their suppliers with higher quality, more accurate information than ever before, making it easier to identify and quickly act upon profit opportunities while reducing the cost, risk, complexity and effort of pursuing savings in deregulated markets. Whether you are an energy buyer or seller, our PowerTools® suite of products offers a full complement of solutions to help you save time, money and positively impact your business' bottom line.

Beginning with our PowerStrategy® facilitated strategic energy strategy planning and supply management process, EnergyWindow can assist your enterprise in developing a comprehensive program to drive down energy costs. PowerStrategy performance management tools help you to benchmark and track cost and usage data so you stay on strategy. We also provide a wide range of research tools, analysis, insight and information to help you spot and seize attractive openings in the market.

Our flagship offering, the PowerQuote® energy sourcing tool, gives qualified buyers easy access to a wide range of nationally known, quality energy suppliers. EnergyWindow has helped numerous businesses succeed in reducing their energy costs and is active in helping shape the future of energy deregulation for the mutual benefit of buyers and suppliers. From full-service, strategic energy management outsourcing to focused solutions, EnergyWindow is the expert resource for business energy users.