When it comes to commercial businesses and the weather, insurance firms and rock salt makers are known for keeping meteorology top-of-mind.
However, when a firm counts 32 weather observation stations in the Northeast alone among its strategic partners — it’s a pretty good bet these days that the professional firm deals in kilowatts. And so it is with Clearview Energy of Dallas, a $40 million supplier of electricity to residents and small businesses that has adroitly been riding the Northeast’s deregulation wave as it wisely arms itself with ever-growing pools of forecasting data.
“Energy has become an information game, and information is what will soon be differentiating one supplier from the next,” predicts Clearview’s CFO, Derek Campbell, who joined the firm back in 2009 as it began mobilizing to pursue the opportunity that, although outside its home state, would quickly become its largest market.
For Campbell, Clearview’s information advantage begins with the firm correctly locking in hedges against the pricing volatility of electricity in the Northeast. However, he believes that someday soon energy consumers will no longer be driven by price alone.
“This is about supplying the consumer with more information about their usage; it might be something as simple as sending a report on weekly usage — here’s the usage for last week, here’s your usage for an average week, and here’s what the temperature was last week,” says Campbell, who believes that going forward, more suppliers will begin seeking to use information to differentiate themselves.
In addition to benefiting from deregulation, it appears that Clearview’s strategy is nicely timed to leverage the growing proliferation of smart meters across the country — a development that has already replaced manual meter readings conducted monthly in certain states with electronic readings conducted every 15 minutes.
It was just this premonition of swelling consumer data that led Campbell to add an executive with commodities trading experience to his team. Along the way, the firm also enhanced its database capabilities by acquiring a data analytics technology from SAS, of Cary, North Carolina. Over time, the analytics tool, specially designed for energy forecasting, had become a “must have” in Campbell’s mind. “We just couldn’t do it using Excel spreadsheets anymore,” he confides.
In order to get the optimum price from a wholesale perspective, Campbell says, Clearview is required to supply the different regional utilities that transmit the electricity with usage forecasts that are now broken down into hourly kilowatt usage increments.
Says Campbell: “The wholesale price of kilowatts comprises 90 percent of our overall expenses today. So a 1 percent to 3 percent savings in this area is significant dollars.”
“In the last two weeks, we have seen certain hours in the day when electricity has suddenly jumped to where if we had to buy it on the real-time market, we would be paying $2 a kilowatt, and meanwhile our customers could be locked in at 10 cents a kilowatt,” explains Campbell, who says that pricing exposure remains Clearview’s “main business risk.”
“You really don’t want to be the lowest price out there because as we’ve already seen in the Northeast this season, pricing can swing dramatically, and if you are constantly the low-cost leader, you could be out of business very quickly,” he explains.
In addition to receiving hourly weather forecasts, Campbell says, the firm is using historical data and leveraging it as it continues to add new customers.
“We can now look back and see what usage was on a 15-degree day in New York for 5,000 customers and project usage for a day predicted to have the same type of hourly weather — but now we have 10,000 customers,” he adds. –Jack Sweeney ¤