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<title>Benefits of Electric Load Aggregation</title>
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<td width="75%" valign="top"><b><font face="Arial" size="6">BENEFITS OF
ELECTRIC LOAD AGGREGATION<br>
</font></b><font face="Arial"><b>A <a href="http://www.paceglobal.com">Pace
Global Energy Services</a> White Paper</b></font>
<div class="Section1">
<p style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight:normal"><span style="font-variant:normal">Introduction</span></b></p>
<p class="MsoBodyText2"><font face="Arial">Electric load aggregation is
the process by which individual energy users band together in an
alliance to secure more competitive prices than they might otherwise
receive working independently.<span style="mso-spacerun: yes"> </span>Aggregation
can be accomplished through a simple pooling arrangement or through the
formation of clusters (the method Pace employs on behalf of its clients)
where individual contracts are negotiated between the suppliers and each
member of the aggregate group.<span style="mso-spacerun: yes"> </span>While
natural gas purchasing alliances have been around for years, states have
only recently begun to allow businesses to purchase electricity from
third party suppliers and, just as importantly, to aggregate loads
across multiple facilities.<span style="mso-spacerun: yes"> </span>This
paper, one in a series, focuses on the benefits of electric load
aggregation for industrial energy consumers.</font><span style="mso-spacerun: yes"> </span></p>
<p style="text-align:justify"><b>Increased Buying Power</b></p>
<p class="MsoBodyText2"><span style="letter-spacing:-.1pt;layout-grid-mode:both">Big
industrials with sizeable electric loads typically have greater
purchasing power and more leverage in negotiations with their energy
suppliers than smaller companies.<span style="mso-spacerun: yes"> </span>It
stands to reason that the more you buy of a given commodity, the more
likely you are to secure a volume discount and therefore, lower per unit
costs.<span style="mso-spacerun:
yes"> </span>When buying electricity from retail suppliers, bulk discounts
are often contingent upon the purchaser�s ability to buy efficiently
traded blocks of power.<span style="mso-spacerun: yes"> </span>Depending
on the prevailing market conditions, the purchaser may need to buy a 25
to 50 megawatt block of power in order to approximate wholesale pricing.<span style="mso-spacerun:
yes"> </span>Since very few industrial facilities consume electricity in
those quantities, companies have begun to aggregate the loads of several
of their own plants or form purchasing alliances with other local
businesses to purchase the larger blocks of power.<span style="mso-spacerun: yes">
</span></span><span style="letter-spacing:-.1pt">The aggregate load also
tends to attract more suppliers to the market.<span style="mso-spacerun: yes">
</span>In turn, this creates a competitive bidding and pricing situation
that benefits the pool members.<o:p>
</o:p>
</span></p>
<p class="MsoNormal" style="text-align:justify"><b>Improved Load Factor</b></p>
<p class="MsoNormal" style="text-align:justify"><span style="font-size:12.0pt;
mso-bidi-font-size:10.0pt;layout-grid-mode:line">Load factor is the ratio of
electricity consumption to peak demand (expressed as a percentage) for
each billing period.<span style="mso-spacerun: yes"> </span>Through
load aggregation, companies can enhance their purchasing power by taking
advantage of load diversity among multiple facilities as a means of
improving the overall load factor for the group.<span style="mso-spacerun: yes">
</span>In order to understand this concept it is important to understand
how load factor affects the purchase price of electricity.<span style="mso-spacerun: yes">
</span><o:p>
</o:p>
</span></p>
<p class="MsoNormal" style="text-align:justify"><span style="font-size:12.0pt;
mso-bidi-font-size:10.0pt;layout-grid-mode:line">Utility regulation allows
energy suppliers to apply a demand charge to each customer�s electric
bill that reflects the proportionate investment in power generation
capacity needed to meet that customer�s maximum load requirements, or
peak demand.<span style="mso-spacerun: yes"> </span>The demand
charge, unlike the energy charge, is a fixed cost that does not vary
according to the number of kilowatt hours consumed during the billing
period.<span style="mso-spacerun: yes"> </span>To the extent that
a customer�s load factor is relatively high, meaning their load runs
consistently at or near their peak demand, the demand charge will
represent a smaller percentage of the overall cost of energy consumed. <o:p>
</o:p>
</span>
</div>
<span style="font-size:12.0pt;mso-bidi-font-size:10.0pt;font-family:"Times New Roman";
mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language:
EN-US;mso-bidi-language:AR-SA;layout-grid-mode:line"><br clear="all" style="page-break-before:auto;mso-break-type:section-break">
</span>When the loads of several customers are aggregated, non-coincident
peaks and valleys in the load profiles of individual customers tend to
offset one other.<span style="mso-spacerun: yes"> </span>This
dampening effect results in a flatter overall load profile, a higher load
factor, and ultimately, lower per unit energy costs for all members of an
aggregate group.<span style="mso-spacerun: yes"> </span>
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<p class=MsoNormal><b style='mso-bidi-font-weight:normal'><u>Figure 1<o:p></o:p></u></b></p>
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<p class=MsoNormal><b style='mso-bidi-font-weight:normal'>Figure 1</b> at
right shows the load factor for two companies, A and B, and the aggregate
load curve.<span style="mso-spacerun: yes">� </span>It can be seen that
while the two companies experienced different load curves (highs and
lows) during the year, their combined loads resulted in a smoother, more
predictable load profile that is more attractive to suppliers.</p>
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<p class=MsoHeading9>Figure 1</p>
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<span style="layout-grid-mode: line; font-size: 12.0pt; mso-bidi-font-size: 10.0pt"> </span>
<p><span style="layout-grid-mode:line"><b>Lower Transaction Costs/Scale
Economies</b><o:p>
</o:p>
</span></p>
<p class="MsoNormal" style="text-align:justify"><span style="font-size:12.0pt;
mso-bidi-font-size:10.0pt;layout-grid-mode:line">Buying electricity on the open
market has become a risky and complicated process.<span style="mso-spacerun:
yes"> </span>With dozens of power suppliers offering a confusing patchwork
of contract terms, weighing the merits of competing bids can be a daunting
task, especially for companies with limited experience in competitive
power procurement.<span style="mso-spacerun: yes"> </span>While most
companies expect to pay less for electricity in deregulated markets,
poorly negotiated contracts, defaulting suppliers, and failure to
understand the �fine print� have actually resulted in higher energy
costs in many cases. <o:p>
</o:p>
</span></p>
<p class="MsoNormal" style="text-align:justify"><span style="font-size:12.0pt;
mso-bidi-font-size:10.0pt;layout-grid-mode:line">Load aggregation creates
economies of scale by making it possible for companies to share the cost
of supplier selection and energy contract management.<span style="mso-spacerun:
yes"> </span>The aggregate group may be able to realize additional savings
by engaging the services of an independent energy manager experienced in
packaging load data for market, managing the RFP process, and leading
negotiations with suppliers.<span style="mso-spacerun: yes"> </span>By
deploying a higher level of expertise in the power procurement process,
the aggregate group will typically enjoy more competitive rates and lower
transaction costs than they could achieve working independently. <o:p>
</o:p>
</span></p>
<p class="MsoBodyText2" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight:
normal">Supply Portfolio Structuring</b><b style="mso-bidi-font-weight:normal"><span style="layout-grid-mode:both"><o:p>
</o:p>
</span></b></p>
<p class="MsoBodyText2"><span style="layout-grid-mode:both">In the
wholesale electricity market there are a variety of services or
�products� that can be purchased to meet one�s energy needs.<span style="mso-spacerun: yes">
</span>For example, suppliers offer base load, peaking load, super peak
load, and other products to meet consumer demand over a given time period.<span style="mso-spacerun: yes">
</span>Many consumers, however, opt to pay a fixed rate for
full-requirements to effectively cap their energy costs and minimize their
exposure to price volatility.<span style="mso-spacerun: yes"> </span>This
approach has its advantage but the consumer ends up paying a hefty premium
for, in effect, asking the supplier to assume the risks associated with
meeting ill-defined load requirements.<span style="mso-spacerun: yes">
</span><o:p>
</o:p>
</span></p>
<p class="MsoBodyText2"><span style="layout-grid-mode:both">Alternatively,
if a facility has carefully analyzed its load requirements and can
effectively manage load going forward, the facility may be able to realize
significant savings by acquiring a portfolio of energy products that meets
its anticipated needs more efficiently than a full-requirements contract.<span style="mso-spacerun:
yes"> </span>As mentioned previously, these energy products are typically
traded in volumes that far exceed the demand of most individual consumers.<span style="mso-spacerun: yes">
</span>By aggregating the loads of multiple facilities it becomes feasible
to purchase the larger blocks of power and take advantage of price signals
associated with using power at different times of the day. </span><!--[if gte vml 1]><v:group id="_x0000_s1027" style='position:absolute;
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<p class=MsoNormal><b style='mso-bidi-font-weight:normal'><span
style='letter-spacing:-.2pt'>Figure 2</span></b><span style='letter-spacing:
-.2pt'> at right is an example of the various energy products available
to meet one�s energy requirements throughout a given day.<span
style="mso-spacerun: yes">� </span>Under a full-requirements contract,
the end user typically pays for a greater proportion of high-cost power
regardless of when the energy is consumed. Through supply portfolio
structuring, the end user can lower energy costs by buying cheaper blocks
of power to meet demand during off-peak hours. <o:p></o:p></span></p>
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<p class=MsoNormal align=center style='text-align:center'><span
style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>Off-peak energy $15/MWh<o:p></o:p></span></p>
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<p class=MsoNormal align=center style='text-align:center'><span
style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>Load Following</span><span
style='font-size:16.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;
mso-bidi-font-family:"Times New Roman";color:black;layout-grid-mode:line'>
</span><span style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>$37/MWh</span><span style='font-size:
16.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:
"Times New Roman";color:black;layout-grid-mode:line'><o:p></o:p></span></p>
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<p class=MsoNormal align=center style='text-align:center'><span
style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>Peak Block</span><span
style='font-size:16.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;
mso-bidi-font-family:"Times New Roman";color:black;layout-grid-mode:line'>
</span><span style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>$34/MWh</span><span style='font-size:
16.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:
"Times New Roman";color:black;layout-grid-mode:line'><o:p></o:p></span></p>
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</v:shape><v:line id="_x0000_s1042" style='position:absolute;flip:x;
mso-wrap-style:none;v-text-anchor:middle' from="8926,5710" to="9274,6262"
strokecolor="red" strokeweight="1pt">
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strokeweight="1pt">
<v:textbox style='mso-next-textbox:#_x0000_s1043;mso-fit-shape-to-text:t'>
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<td><![endif]>
<div>
<p class=MsoNormal align=center style='text-align:center'><span
style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>Around The Clock Block $24/MWh<o:p></o:p></span></p>
</div>
<![if !mso]></td>
</tr>
</table>
<![endif]></v:textbox>
</v:shape><v:shape id="_x0000_s1044" style='position:absolute;left:6051;
top:6044;width:1403;height:620;mso-wrap-style:none;mso-wrap-distance-left:9pt;
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mso-wrap-distance-bottom:0;v-text-anchor:middle' coordsize="1536,680"
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strokeweight="1pt">
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<v:textbox style='mso-next-textbox:#_x0000_s1048;mso-fit-shape-to-text:t'>
<![if !mso]>
<table cellpadding=0 cellspacing=0 width="100%">
<tr>
<td><![endif]>
<div>
<p class=MsoNormal align=center style='text-align:center'><span
style='font-family:Arial;mso-bidi-font-family:"Times New Roman";
color:black;layout-grid-mode:line'>Off-peak energy $15/MWh<o:p></o:p></span></p>
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</tr>
</table>
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<v:textbox>
<![if !mso]>
<table cellpadding=0 cellspacing=0 width="100%">
<tr>
<td><![endif]>
<div>
<p class=MsoHeading8>Figure 2</p>
</div>
<![if !mso]></td>
</tr>
</table>
<![endif]></v:textbox>
</v:shape></v:group></v:group><![endif]-->
<span style="mso-ignore:
vglayout"></p>
<table cellpadding="0" cellspacing="0" align="left">
<tr>
<td width="4" height="17"></td>
</tr>
<tr>
<td></td>
<td><img src="../images/loadag2.gif" v:shapes="_x0000_s1027 _x0000_s1028 _x0000_s1029 _x0000_s1030 _x0000_s1031 _x0000_s1032 _x0000_s1033 _x0000_s1034 _x0000_s1035 _x0000_s1036 _x0000_s1037 _x0000_s1038 _x0000_s1039 _x0000_s1040 _x0000_s1041 _x0000_s1042 _x0000_s1043 _x0000_s1044 _x0000_s1045 _x0000_s1046 _x0000_s1047 _x0000_s1048 _x0000_s1049" width="651" height="175"></td>
</tr>
</table>
</span><span style="layout-grid-mode:both"> <o:p>
</o:p>
</span>
<p class="MsoBodyText2"><span style="layout-grid-mode:both"> <o:p>
</o:p>
</span></p>
<p class="MsoBodyText2"><span style="layout-grid-mode:both"> <o:p>
</o:p>
</span></p>
<p class="MsoBodyText2"> <o:p>
</o:p>
</p>
<p class="MsoBodyText2"> <o:p>
</o:p>
</p>
<p class="MsoBodyText2"> <o:p>
</o:p>
</p>
<p class="MsoBodyText2"><b>Conclusion</b></p>
<p class="MsoBodyText" style="text-align:justify">Electric load
aggregation is one of the most effective means of maximizing savings and
mitigating risks in today�s emerging power markets.<span style="mso-spacerun: yes">
</span>The challenge lies in finding suitable aggregation partners and in
finding an independent energy procurement specialist capable of analyzing
load data, administering the RFP process, leading negotiations with
suppliers, and providing ongoing management and monitoring services on
behalf of the group.<span style="mso-spacerun: yes"> </span>Pace
Global Energy Services has been very successful at forming power (and gas)
purchasing alliances by leveraging its extensive client base across the
country.<span style="mso-spacerun: yes"> </span>On behalf of its
clients, Pace has developed creative ways of packaging load data for
market, secured the most competitive rates available, enhanced supply
security, and brought clarity and organization to a confusing procurement
process.</p>
<p class="MsoBodyText" style="text-align:justify">It is important to note,
however, that pricing for members of an aggregate group may vary depending
on individual load factors, cost of service, and supply objectives.<span style="mso-spacerun: yes">
</span>Despite minor pricing variances, electric load aggregation
represents a powerful cost-reduction tool for companies with varying load
shapes and sizes.</p>
<hr width="98%" color="#FFFF00" size="1">
<p class="MsoBodyText2"><span style="color:black">Pace Global Energy
Services is a recognized leader in offering energy management and
consulting services.<span style="mso-spacerun: yes"> </span>To learn
more about Pace, look for us on the Worldwide Web: <a href="http://www.paceglobal.com">www.paceglobal.com</a>;
or contact us by mail: <br>
<br>
4401 Fair Lakes Court<br>
Suite 400<br>
Fairfax, Virginia 22033-3848<br>
phone 703-818-9100 | fax 703-818-9108</span><span style="color:white"><o:p>
</o:p>
</span>
</td>
</tr>
</table>
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