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Wal-Mart Launches Power-Buying Desk for Texas Facilities

Wal-Mart for the last four months has been procuring power for its stores and distribution centers in the Electric Reliability Council of Texas (ERCOT) market through a power-buying desk, and the giant retailer is not ruling out applying this strategy to other power markets in the U.S., although a Wal-Mart official said that the company doesn't have any imminent plans to do so.

In an interview with NGI, Stan Green, Wal-Mart's director of energy, said that the move to set up the power-buying desk for the Lonestar State was not precipitated by dissatisfaction with retail energy providers (REPs) that the company has previously used. Wal-Mart has a total of 250 stores and distribution centers in the ERCOT area.

"What led us to give it a shot on our own is just the idea that it would probably be a good way to lower costs and by gaining more direct access to what goes on in the wholesale power markets, we felt like more information and more knowledge would probably just enable us to make better decisions," Green noted.

"The reason we do this is to lower the cost and ultimately we do that because that enables us to pass on lower costs to our customers," added Wal-Mart spokesperson Dan Fogleman. "That is our primary interest in any of this...to maintain the cost structure, keep the prices down, so that we're able to maintain that everyday low price position in the marketplace with our customers."

The desk started operations on Nov. 1. "We are pleased with the results to date," Green said. "We feel like it's worked as least as well as we thought it would work."

He said that Wal-Mart has four people who "staff the entire function," which is named Texas Retail Energy. "Only one of those is actually a power buyer, though. We have one person who is the general manager of the operation. Another person who's in effect director of operations and handles, among other things, scheduling and forecasting, and then we have a back office person to help with the billing to all of our facilities." The team is located in Bentonville, AR, the site of Wal-Mart's headquarters.

Green said that on a peak day in the summer, "our peak demand would probably be something like 250 MW. Only on a peak day and only at that peak period. Right now, we're probably more like a peak of 150 MW [at] this time of year."

Texas Retail Energy LLC holds a REP certificate that has been issued by Texas utility regulators. The certificate "basically allows us just to sell electricity to our own facilities -- the facilities owned by Wal-Mart. There's basically a restriction under the certificate that limits us to selling to our own facilities," the Wal-Mart official said.

Green underscored the point that the desk is not selling blocks of power in the state's power market. "We have not sold any blocks of power and it's not in our game plan to sell blocks of power. I suspect the confusion has come from the fact that anytime there's not a perfect match of a block that we buy with our consumption, that power's liquidated into the ERCOT market and I guess that technically qualifies as a sale."

Wal-Mart's desk is "not out there trading blocks of power or even selling blocks of power, we're just strictly buying for our own consumption."

Meanwhile, Green was asked to comment on whether Wal-Mart might consider applying the power buying strategy it has adopted in Texas to other states or regions of the U.S.

"Yes, we've begun to look at some other markets on a very preliminary basis," he said. "We don't have any imminent plans to expand, but we do think that based on the first four months of operations in Texas that there might be some opportunities to move into some other places."

When asked what would be a specific draw for Wal-Mart in terms of a specific region or state, Green said "to work, it would really have to be states that had some type of competitive or deregulated markets." He noted that "places where we have a large presence" include California and the Northeast, both of which have "some deregulated markets and I don't know where we'll go next, but those are big places that we would at least take a look at."

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