When it comes to negotiating a utility contract for your expanding or relocating company, which is more important: price or reliability?
Most of us would instinctively say price, at least until this winter, that is. That’s because, for most businesses, reliability has become almost “a given.” In fact, the bar on utility reliability had been raised so high that many companies actually take advantage of utility offers of reduced rates in return for agreeing to be among the first to lose their electricity in the event of emergency shortages.
Besides, if there ever was a power outage, it was usually due to a mechanical failure in the system, often caused by a random act of nature, such as lightning, which, by its very random nature, means that it’s unlikely to knock you out very often.
The way people got around that random act of nature was to have two independent sources of power coming into their facility, the idea being that if one source went down, they simply switched to the other source and continued on without a hitch.
This winter, however, a combination of price, supply, price controls, severe weather and deregulation, among other things, converged to cause a series of rolling blackouts in California. All of a sudden, we’re reminded that reliability is not always “a given.”
And California is not the only place an electricity crisis can spring up. It seems like most summers we have “brownouts” somewhere in the United States. Anytime we interject something, other than price, between supply and demand, we run the risk of an outcome not entirely to our liking.
I have no doubt that California will solve its current energy situation. I also have no doubt that this is not the last time we will have a situation -- in the United States or elsewhere -- where demand exceeds supply and customers, whether industrial or residential, are caught in the middle.
At the risk of beating a dead horse, it should be obvious that all corporate site selectors should include energy capacity and expansion in their list of data to collect on prospective site locations. Many already do. All should. A robust energy grid delivering an ever-increasing supply of electricity is just as important to a location as is a multi-modal transportation infrastructure, or a vibrant telecommunications network.
In addition to price, a site selector should also look closely at the delivery grid to see where bottlenecks are likely to occur. Pay attention to state lines and places where service territories connect.
Look closely at the generation capacity within the service area to make sure that it is adequate to meet current consumption, and is growing to meet increasing demand. If not, it will likely manifest itself in terms of increased cost and, invariably at the worst possible moment, in terms of reliability.
If yours’ is the type of company where even a 99.99 percent reliability rate is not good enough, this could turn into a very costly problem. If, on the other hand, an occasional loss of power is not a big deal for you, then you’re probably an ideal candidate for reduced rates.
The choice is yours, but only if you plan ahead.
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