Marketing in the Electric Utility Industry and Entergy

As mentioned during our first class, marketing in the Electric Utility Industry is unique.  In fact, with “deregulation,” it is different in different areas of the country.  The company I work for, Entergy, currently owns regulated plants in the South, where they are the utility selling directly to customers, and deregulated plants in the north and Midwest, where we are merchant plants selling to the local “grid” (a non-profit ISO, or Independent System Operator), which then sells to transmission and distribution (T&D) companies, unless we have specific power purchase agreements with specific T&D companies.  I could write all semester about Vermont Yankee’s recent issues with the State of Vermont and our current lack of any major power purchase agreement, but I think that would take away from the generic discussion about marketing in the electric utility industry.      

So, the regulated southern plants sell directly to the customers, but their prices are controlled by public utility commissions or public service boards.  In general, they are able to pass the cost of any required capital improvements directly to the customers in the form of rate increases.  The deregulated northern plants sell to the grid.  “Deregulated” isn’t really deregulated.  Enron destroyed that dream with their shenanigans in California (for more on that, see the book or movie “Enron: The Smartest Guys in the Room”).  As a result, we now have FERC (The grid’s prices are set by the highest priced capacity which is required to meet demand.  In other words, Vermont Yankee bids a certain (low) price.  Therefore, we are guaranteed to be on the grid.  As demand increases, the ISO adds capacity from the next highest bidder and everyone supplying at that time get that higher price. 

With the recent low prices in natural gas, electricity prices have been pretty low, so the deregulated plants have been severely challenged.  It’s pretty funny that Christine Clemmons mentioned that her mother and stepfather worked at our Fitzpatrick plant and then Prof. Spotts mentioned the McKinsey consulting firm, because, as we speak, McKinsey has been hired by our CEO to see how we can become more “competitive” and they are starting at Fitz.  Needless to say, people are nervous.  In the nuclear industry, we are expected to lose 30% of our workforce in the next 5 years to retirements, anyway, but…      

We, Entergy, came into an interesting scenario in Arkansas a couple of years ago.  This was before natural gas prices were so low, so our northern plants were making quite a bit of profit.  The Arkansas public service commission (or whatever their name is) was arguing that the ratepayers in Arkansas should not pay a higher rate to pay for capital improvements at plants in Arkansas because Entergy was making more money than expected in the northern plants.  I’m not sure what the outcome was, but, now that the northern plants are not making much (if any) money because of natural gas competition, I’m sure they would not be willing to subsidize Entergy’s losses in the north, even though they were more than willing to demand subsidies from the north when we were making money.  I almost didn’t want to add this section because we recently suffered a tragic industrial accident at our Arkansas plant, but I thought it was important to show how the market for electricity varies not just within the country, but within one company.

How does this apply to me and my job?  I’ve been told it doesn’t.  However, even though I do not directly deal with our customers, I am at least partly responsible for the reliability of the station.  We can’t meet any market demand if we are not operating at or near full capacity.  I’m proud to be part of an industry that was producing at just 50% percent capacity when I started in 1979 and is now consistently produce at or near 90% capacity.