Associated Power Pair Take Advantage Of Deregulation To Form Energy Marketing Company

In the Grand Coulee world of the Bonneville Power Administration, Associated Power Services Inc. is a AAA battery.

Guess which one flickered last Monday.

Bonneville, provider of half the energy consumed in the Northwest, announced plans to cut prices.

It was the ultimate confirmation that companies like Associated are rewiring energy markets as deregulation allows newcomers to challenge not just Bonneville, but any utility that has exercised monopoly control in its service territory.

Although many barriers remain, Associated executives Steve Kern and Lloyd Reed say they have the connections to succeed.

The two left Washington Water Power Co. last October. Reed said the pair could see the changes deregulation would have in the marketplace, but were unsure if they would have a role in shaping the Spokane utility’s response in light of its proposed merger with Sierra Pacific Resources.

Kern, who was doing planning and analysis for WWP’s natural gas operations, had been working with Associated Natural Gas Co., Reed said. Associated is the largest shipper on the Northwest Pipeline, which delivers gas from fields in Alberta and British Columbia to points as far south as Southern California.

Kern said Associated had suggested he and Reed form a Spokane unit that could market electricity to some of the same utilities that were already natural gas customers. A similar office was already operating in Oklahoma.

Kern and Reed, who had a background in power marketing, had already built relationships with potential Associated Power customers.

“Both of us are pretty hands-on people,” Reed said.

Two weeks after opening the Spokane office for Associated, the company was purchased by Panhandle Eastern Corp. Houston-based Panhandle operates one of the largest natural gas distribution systems in the country, and has about $8 billion in assets.

Reed said Panhandle had been looking at the power industry because it was a large electricity user. Also, he said, the company was looking for opportunities to sell gas to the burgeoning number of independent power producers using the fuel to generate inexpensive kilowatt-hours.

Kern said Panhandle’s size and willingness to accumulate assets should give Associated Power an edge in the competition for energy customers.

Many would-be players in the market want to act only as brokers, he said. Panhandle is among the few that would build or purchase generating facilities to meet customer needs.

Reed noted Panhandle recently hired the former senior vice president of Pacific Gas Transmission - Paula Rosput - as head of Associated Power, at the same time giving her direct access to the corporate chief executive.

The restructuring demonstrates Panhandle’s commitment to a combined natural gas-electricity sales effort, he said.

And, Rosput said from Houston, the Spokane operation will be the template for similar offices around the country as more and more states move toward deregulating energy markets.

Reed said he and Kern will handle all of Associated Power’s West Coast business, most of which is in the Pacific Northwest.

Kern has also been traveling around the country helping other Associated offices get started.

Associated sells gas as far east as Florida, Kern said, and includes 200 California industrial companies among its customers. “It puts us in a great situation to be an energy provider, not just natural gas,” he said.

Reed said the energy “cafeteria” will include services like the transportation, storage, and dispatch of natural gas. On the electricity side, the selection would include generation.

Reed and Kern said they are banking on their experience with WWP, and Puget Power & Light Co. before that, to give them an edge on the many other energy brokers flocking to the Northwest.

They have already made one small deal with the Montana Power Co., Reed said, adding that another WWP employee will join Associated Aug. 1 to bring the staff to five.

Utilities, he said, can still block access to their customers by denying competitors the use of their grids, but regulators are moving towards eliminating that handicap.

Kern said he hopes to be serving 200 megawatts to 300 megawatts of load in five years. By comparison, WWP delivers about 900 megawatts to customers in its service territory.

“Within the next year, a lot of the rules will be known,” he said. “Once that happens, it’s going to be like a wildfire.”

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