Investor-owned Sharyland Utilities (SU; McAllen, Texas, U.S.) is the first new electric utility in Texas since the founding of the Public Utility Commission of Texas (PUCT) 30 years ago. Now in its fourth year of operation, SU brings to the state's energy market a new kind of wires service company known as an “asset-backed virtual utility.” This article explores some of the distinctive differences that characterize this novel concept.

First, SU's outsourcing philosophy maximizes utility resources by enabling a few employees to function as a “virtual” staff of highly efficient contract managers. Outsourcing all — not just some — essential services to outside providers minimizes the overhead associated with supporting in-house expertise, generates value-added synergies that benefit utility and contractor alike, and keeps electric rates down.

Secondly, from the start, SU planned the carefully staged build-out of its T&D infrastructure to achieve the highest reliability possible — not only for commercial and industrial (C&I) customers, but also for the develop-ment's Internet-literate residents. Redundant substations and transformers, underground loop systems and parallel transmission lines are some of the reliability measures that have been implemented throughout the master-planned community for every class of customer.

SU's reliability strategy is paying off. For the second year running, an Electricity Reliability Council of Texas (ERCOT) survey has rated SU best in the state in terms of fewest utility power outages.

A third component, SU's interval data collection, analysis and Web-based presentation capability, provides all utility customers with accurate time-of-use energy data to help them adjust their demand peaks and lower their electric bills. This is not unusual for C&I customers, but SU is the first utility to offer it to the residential ratepayer.

Creating Inertia for Growth

Located on the southern edge of the Rio Grande Valley in south Texas, Sharyland's 9-sq mile (23-sq km) service territory is the epicenter of the booming McAllen-Mission-Reynosa economic zone. Commercial development of Sharyland Plantation took off in 1997 with the rise of the maquila industry and the planned development of 16,000 acres across the border in Reynosa, Mexico.

As America's third fastest-growing city, Forbes recent naming of McAllen as one of the top five places in America to do business has fueled tremendous growth in Sharyland. In fact, nine separate housing subdivisions — ranging from US$80,000 to almost $1 million per home — are now complete, with growth expected to top 10,000 residents by the end of the decade.

In anticipation of this growth and the accompanying demand for reliable and affordable electricity, Hunt Power (Dallas, Texas) petitioned the PUCT in 1998 to launch a new electric utility that would consolidate all engineering and service functions for the Sharyland development under a single roof. In July 1999, the PUCT granted the Certificate of Convenience & Necessity, and Sharyland Utilities became an official public utility in the state of Texas.

With the implementation of “Texas Choice” on Jan. 1, 2002, the generation, retail and infrastructure components of investor-owned utilities (IOU) were functionally separated. Since that time, SU has been the service and connectability provider for the retail energy suppliers serving the 6000-acre development. As a regulated wires-only company, SU's mandate in the restructured Texas energy market is to build and maintain its T&D infrastructure, read the customer's meter and send that daily-usage data once a month to ERCOT and to the energy provider serving the customer.

At present build-out, SU serves 720 customers. The ratio of roughly 70% residential to 30% C&I customers is expected to remain fairly stable over the next 10 to 15 years. Ultimately, the utility's service territory is expected to support 350 to 400 MW of connected load served by four 100-MW substations at key locations in the development.

Outsourcing Philosophy

Even before receiving regulatory approval to exist, SU began to itemize the tasks necessary to deliver electricity to its customers with the minimum capital investment, lowest over-head and smallest staff possible. That strategy has been successful with operations today being managed by a permanent staff of two electrical engineers, an accountant, office manager and receptionist.

At the frontend of the process, it became apparent that it would not be cost effective for the utility to hire the in-house talent to perform all the required services. Many functions were relatively easy to subcontract to third parties. Other jobs traditionally performed inside the utility required creative outsourcing solutions, including:

Billing Services. The Public Utilities Board of Brownsville (PUB), a neighboring municipal utility, had the trained staff, expertise and capability of transparently supporting SU's service needs on a customer confidential basis. A full range of services are provided, from setting up accounts to generating work orders, and archiving customer historical data to reconciling monthly account activity.

SU's lower customer activity level was solved by assigning a monetary value to each service. Based on published energy industry benchmark data, SU factored these costs into a minimum number of customer transactions per month that guaranteed a nominal revenue source and better utilized PUB's permanent staff. The arrangement helped SU to baseline its contract costs for the service and to avoid the overhead necessary to support these services in house.

Payment Processing. The InterNational Bank (INB) of McAllen, a full-service financial institution, is located just down the street from SU's office. INB used its existing IT and financial system expertise to design a customer account numbering system and billing statement format for Sharyland. In a novel twist, the customer statement doubles as a deposit slip with the bank's routing number and SU's account printed on the return portion. The bank swipes the payment slip through a reader, which opens the SU account and credits the customer payment. This arrangement maximizes the utility of the bank's staff and provides them with an opportunity to market other financial services to the Sharyland customer. SU benefits by avoiding additional staffing overhead, bonding of employees, managing the document flow and handling cash.

Dispatch Services. Red Simpson Inc. (RSI) provides traditional distribution construction services and manages the daily operation and maintenance of SU's underground loop distribution system, including after-hours response and restoration services. PUB provides outage notification and repair crew dispatch service, an extension of the services it normally provides its own customers. SU installed a new phone circuit that routed its customer calls to the Brownsville dispatch office. The PUB staff answers all calls on the SU line as Sharyland dispatches the RSI repair crew to the trouble spot and notifies the SU supervisor of the problem by phone and fax.

Material Warehousing. The construction of the backbone circuits during SU's start-up phase resulted in fluctuating inventory levels and variable warehousing needs. SU contracted a local warehouse company (LWC) that operates a “pick and pack” operation where bulk electrical materials are received, stored and disbursed “just in time” according to purchase orders. LWC provided secure internal and external storage, daily material movements, computerized inventorying and outgoing material inspection. SU is currently working with LWC to upgrade the latter's inventory management system to accommodate its expanding needs, while exploring alternative solutions in parallel as a result of normal utility growth.

Metering. Unlike most utilities with a dedicated internal department for the various issues relating to these “cash register” devices, SU contracted MeterSmart, a Hunt Power subsidiary, to provide standard meter services, including procurement, stocking, installation and testing. MeterSmart took it to a new level by offering time-of-use metering, interval data collection and Internet-based presentation for every class of Sharyland customer.

In addition to those already mentioned, other customer services SU currently subcontracts include:

• Legal

• Project design

• Rate design and analysis, utility modeling design, economic studies

• Regulatory, back-office systems and management, call center response

• Safety procedures, fuse coordination, substation design

• System planning and material specifications

• Transmission line construction, survey and ROW services, easement procurement.

SU found that outsourcing increased the efficiency of the various customer service functions and provided a greater number of enhanced services without SU losing control of its customer. Indeed, SU has become very much of a virtual utility. The combination of a small focused staff and the outsourcing of various core tasks allows the utility to remain competitively priced in its market.

Reliability Strategy 1: Redundant Transformers

One key element of the reliability strategy SU is now implementing is to incorporate redundancy throughout the transmission system and electrical substations. The substation provides redundant transformer capacity and distribution circuits that allow customers to be switched from one feed to a backup line in the event of an outage. One permanent 100-MW substation (currently operating at 50 MW) now exists, with a 50-MW mobile backup unit at the same location providing redundancy.

A second substation is under design and will be operational by early summer 2003 to serve the load between two separate transmission lines. Each transformer will provide enough redundancy to assume the full load if necessary. An additional transformer with four distribution breakers will be added at each substation as the load increases toward maximum build-out of four substations.

Reliability Strategy 2: Parallel Transmission Lines

Another important component of Sharyland's reliability strategy is the carefully planned installation of redundant transmission lines. A new overhead transmission line will soon parallel an existing overhead line on the north side of the development in the lower third of the development. Having just been approved for construction, upon completion, the south line will enable the development to draw power from either the north or south line at any given time. Three miles (5 km) of separation between the two lines should provide a hedge against possible damage to both lines due to tornadoes or other natural events.

Reliability Strategy 3: Looped Underground Distribution

A third major aspect of SU's reliability plan called for a looped underground distribution system to increase power quality and speed outage response, an especially critical requirement for C&I and technology-based customers like CentraTek's new Sustainable Technology Business Center. The loop system involves running parallel lines to the transformer that serves the customer's facility. Both lines may be from the same source, but the possibility of a long outage is minimized by the ability to manually switch to a secondary source if the main electrical feed goes down as the result of a dig-in, for example. Instead of a three or four-hour repair, the customer can be switched back on in less than 30 minutes, allowing the damaged area to be isolated and repaired at the utility's normal work pace. If the customer wants to augment the utility-provided service with automatic-switching capability, SU can help that customer define the requirement and install it on a consultation fee basis.

Underground distribution lines avoid overhead contamination, are not aesthetically obtrusive, and are less vulnerable to lightning. Underground loop systems are provided for all classes of customers, including residential.

Interval Data Collection and Web Presentation

As SU's metering service contractor, MeterSmart provides a suite of fee-based services that SU offers to its customers according to their needs. These services include automatic meter reading, data validation and editing, real-time pricing and billing, load research, data archiving, turnkey load control solutions, on-site technical support, Internet presentation and others.

MeterSmart uses the metered interval data obtained on an hourly basis from each residential and C&I customer to calculate the customer's demand profile. The same information is also used by the customer's energy service provider for billing and by SU to compute a portion of the wires charge it levies on each customer's energy service provider as a Transmission/Distribution Service Provider (TDSP) fee.

Last year MeterSmart launched a new service that allows all SU customers to view their energy usage information, in both numerical and graphic format, on the Internet. To access it, Sharyland customers log onto a password protected web site via any Windows-compatible browser. Additional on-line services soon will be available through MeterSmart on a subscription basis, including customer e-mail reports on daily, weekly or monthly energy usage. Also, a new energy alarm service will notify residential and business customers when they have exceeded user-defined maximum energy thresholds. Future Web-based capability will even allow customers to update their energy usage “on demand” to the current time of day.

SU's time-of-use metering and data-processing capabilities enable residential customers to shave their demand peaks, and will allow for equipment/appliance control when retail energy providers offer time-of-use rates in the future.

Looking back on the first three years of SU's existence, management was faced with many challenges including beginning operations with no existing infrastructure, energy supply or customers. Initially, resources were stretched to the limit trying to build circuits ahead of subdivision construction. Service response was slow during the start-up phase but once that backlog was no longer an issue, responsiveness improved to where service calls are typically completed in two days or less, versus up to three weeks for most utilities.

The biggest current challenge is to get retail energy providers to investigate the opportunities in Sharyland and to actively pursue the Sharyland customer. As a wires-only company, SU has no direct financial interest in supplying energy but will happily serve as matchmaker to any outside energy provider with a good rate and any energy-savvy customer armed with the demand profile to take advantage of it.

SU is a textbook example of how the right backing, coupled with a good strategy and hard work, can achieve remarkable results in a relatively short period of time. SU started out small but is growing fast. Commercial real estate is active with companies like Black & Decker, Bissel and Panasonic moving into warehouses and gearing up for manufacturing. At any given time, approximately 100 temporary construction poles are energized, with home starts averaging about 15 per month.

Mark E. Caskey, BSEE, P.E., has been general manager of Sharyland Utilities since its founding in 1999. He was previously employed by Dow Chemical, Gulf States Utilities and Bryan Texas Utilities where he specialized in overhead distribution operations. Several of the ideas implemented at Sharyland were inspired by his undergrounding work at The Woodlands, north of Houston, Texas.