Winning on the Grid — and on the Pipelines
Posted On: February 16, 2011
By Managing Director of Wholesale Operations Eric Hendrick
With deadlines to face every day, life in the Wholesale Department at Stream Energy is a little hectic. It’s like living a game of chess—every move is highly calculated and the pressure is on to stay two steps (or more) ahead of the competition.
The deadline I refer to is largely an everyday goal of being perfectly hedged during the process of submitting our energy load requirements.
Every morning, Stream Energy must submit its requirements for the following day directly to AGL and to suppliers who act as Stream Energy’s scheduler (or QSE). This process ensures the firm has forecasted and procured enough energy to meet the needs of every Stream Energy customer. However, the load requirement submitted is simply an estimate of how much energy will be used. If the firm forecasts too high or too low, profits shrink or possibly throw Stream Energy into the red, i.e. “Checkmate.” Inaccuracies or errors can prove costly to the firm, its 260+ employees, and the thousands of Ignite independent network marketing associates that all rely on Stream Energy in order to provide for their families. To say we have to get it right is an understatement.
Many variables are taken into account before we submit our daily schedules or procure power for our customers’ future needs (“our daily move”). We must have an accurate count of the total number of customers Stream Energy provides service to in all three states in which we currently offer service—Texas, Georgia and Pennsylvania. If the customer count is inaccurate we may forecast and submit a load requirement to the supplier or pipeline that is too low or too high. With that said, we could be buying too little or too much energy then we actually need and ultimately we could cost the company thousands of dollars of profit in just a single day.
Also, the price of natural gas must be taken into account each day. It may sound strange to anyone unfamiliar with the energy industry, but the price of natural gas is typically what drives the price of electricity. If natural gas is trading high, electricity rates will be higher and vice versa. With natural gas currently trading fairly low, electricity rates have stabilized over the past year or so at more affordable rates to consumers.
Our customers’ historical usage data and ten-year weather patterns are also analyzed daily before we make our move on the proverbial chessboard. Hypothetically, a customer who lives in a large home in Texas is going to use much more electricity to cool that home in August than in April. Having accurate weather data and historical usage for each premise we provide service to greatly assists our ability to forecast so we can provide our supplier with an accurate load requirement and/or purchase.
The most challenging part of the Wholesale Department’s job is ensuring that purchases and physical flow equal load. We have to buy timely and forecast correctly by purchasing the right amount of energy from the grid at the right location and price. This ensures a successful future for our firm with the ability to expand into new markets.
I can’t stress enough the importance of ensuring that Stream Energy is hedged properly. When our forecasts and purchases are set and we see that our forecasts are coming in correctly, it is a great feeling of accomplishment. We feel very proud because we have assured Stream Energy’s future for all employees and Ignite Independent Associates, and they can continue to enjoy the financial and job security they work so hard for every day.
The victory and celebration are short lived, however. The next move to avoid Checkmate is always only one day away.