Keeping electricity use and supply in balance

Day in and day out, North America Power Partners bids hundreds of megawatts of electricity into PJM Interconnection, the 13-state power pool that serves the Philadelphia region and much of the upper Midwest.

The small Woodbury company competes with the likes of Exelon Corp., the nation's top producer of nuclear energy, and American Electric Power Co. Inc., a leader in coal-fired power, as well as with companies that own small generators fueled by natural gas and oil.

But North America Power does not own any plants or transmit any electricity. Instead, it bids on behalf of electricity users - large companies, office buildings, even high schools and middle schools - that stand ready to cut their use on short notice to meet market demand.

Since it opened its doors a year ago, North America Power has been a real-life demonstration of a theory touted since electrical service opened to competition in the late 1990s: that "managing demand" can sometimes be as important, and as profitable, as generating supply.

North America Power is not just a demonstration. It is a growing reality that employs 15 people, earns an operating profit, and expects to turn profitable for investors by the end of its second year, according to its president, Laurie Wiegand-Jackson.

"And I'm pretty proud of that," Wiegand-Jackson said, speaking of the private company's performance. Although she would not disclose financial details, she said in a recent interview that the company had contracts "in the millions of dollars."

Wiegand-Jackson's bona fides are easily evident. At 46, she has spent nearly all her adult life in the electricity industry, mostly in the energy-services sector. In 2002, she founded Utility Advantage, a Mount Laurel consulting firm. She is president of the International Association of Energy Engineers.

It is also easy to describe the credentials of North America cofounder and senior vice president Joe Polidoro, an electrical engineer who spent 17 years at PJM Interconnection L.L.C., most recently in its market-operations unit.

Much harder to describe is their business model as a "registered curtailment service provider" in PJM and in similar power markets serving New England, New York and California.

Wiegand-Jackson said the business got its start thanks to a May 2006 change in PJM rules, approved by the Federal Energy Regulatory Commission, that allowed "demand response" companies to more fully participate in PJM's wholesale markets.

"That's really when the market changed, and it became a viable business opportunity for us," Wiegand-Jackson said.

What is "demand response"? One way to describe it is with a twist on the penny-saved-penny-earned adage attributed to that noted scholar of electricity, Benjamin Franklin. As Franklin might have put it, a kilowatt saved is a kilowatt made.

The key is that, unlike other commodities, electricity cannot be stored efficiently. So to balance supply and demand, and avert brownouts or blackouts, grid managers actively manage a fleet of power plants that can be switched on or off as needed to meet the peaks and valleys of demand.

Operating so-called base-load plants such as Limerick is relatively cheap. But as demand rises, especially on the hottest summer afternoons, electricity that wholesales for an average of about $55 per megawatt-hour (5.5 cents per kilowatt-hour) on a year-round basis can soar five-, ten- or even twentyfold in price.

Therein lies the business opportunity for companies such as North America Power, and for their clients.

As wholesale power prices climb, some businesses can make more money by curtailing their energy use than by operating normally. North America Power and its competitors, such as Boston-based EnerNOC Inc. and New York's Consumer PowerLine, make money by arranging the transactions and sharing in the proceeds.

Around the region and nationally, some consumers already participate in demand-response programs. Eventually, if computerized "smart meters" become widespread, more will be able to benefit. But for companies such as North America Power, today's opportunity comes from managing the demand response of larger energy users.

Wiegand-Jackson said that, during this week's heat wave, one such client, a Maryland industrial plant, has made about $2,000 an hour by forgoing use of about 20 megawatts of its ordinary demand - enough energy to serve 16,000 to 20,000 homes. In essence, it sold energy it did not need back to the grid for about 10 cents a kilowatt-hour. This week, some North America Power clients have made twice that price.

Another way North America Power's clients profit is by participating in the so-called "synchronized reserves" market. Under rules dating to New York City's infamous 1967 blackout, utilities have been required to buy reserve power to ensure the grid's reliability.

Originally, such power was called "spinning reserve," because plant owners were literally paid to keep some plants operating in standby mode, with generators spinning like a car engine running in neutral, so they could be called on to deliver power if other plants suddenly failed.

PJM now calls it "synchronized reserve," because demand-side providers do not have to spin generators in neutral to meet the grid's needs.

For the last few months, for example, Sims Group Ltd., an Australian recycling firm that became a North America Power client in February, has met some of PJM's reserve needs.

Sims officials say they have saved "tens of thousands of dollars a month" simply by agreeing to swiftly curtail consumption if called upon to meet demand, primarily by shutting down a 9,000-horsepower shredder at its Jersey City metal-recycling facility that is a huge energy hog. So far, there have been no such calls.

Polidoro said Sims' bid of reserve power has environmental as well as financial benefits. "Instead of having a 9-megawatt oil generator running on standby, we're saving about 30,000 pounds of carbon dioxide emissions per day," he said.

To Jeanine Brady, Sims' national purchasing manager, the deal is a perfect win-win.

"This is a totally different spin on what you can do to help yourself as well as help our environment," she said.