Preferred Energy Services Inc.

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PES Was Listed As The 3rd Fastest Growing Private Company In Silicon Valley By The San Jose Business Journal

Preferred Energy Services Inc.
Empowering clients with energy consultation and distribution


October 12, 2000. California may be in the midst of an energy crunch, but every year since 1988, Bay Area's own Draeger's Supermarkets Inc. has reduced its annual electricity bill by approximately $40,000. "If you multiply that [by 13 years], it's a ton of money," says Richard Draeger, vice president of the chain that has stores in Los Altos, Menlo Park and San Mateo. "It's a lot of groceries."

Draeger's not-so-secret weapon is Preferred Energy Services Inc., a full-service energy consulting and on-site power generation firm. The San Jose company is creating a buzz as one of Silicon Valley's fastest-growing private companies.

No overnight sensation, company President Rick Kohl used $7,500 in savings to found the firm in 1988. His goal: to provide utility and telecommunications account auditing and contract-negotiation services to businesses spending $20,000 to $50,000 monthly. Still, simple concepts often are hard to grasp.

"People think they can negotiate the price of a car or find the best deal on an airline ticket, but for some reason they think of their energy and telecommunication services as being regulated by the government and fixed in stone. But that's not the case," Mr. Kohl says. "There's a great deal of flexibility for firms looking for optimal price plans."

Although the original concept catered to mid-level firms, word spread. And these days, Mr. Kohl's brainchild has lobbied for lower utility and telecom rates and refunds on behalf of one-fourth of the valley's businesses and corporate giants, including AT&T, Cisco Systems, Hewlett-Packard Co., Seagate Technology and Oracle Corp. Ironically, he says, even the large power users don't have the in-house expertise to negotiate the best rates.

"It amazes me how many telecom and facility managers are totally dependent upon their vendors for most of their information. It's ludicrous to assume a vendor is looking out for you," explains Mr. Kohl, a former energy engineer for Pacific Gas and Electric Company, who provided efficiency studies for commercial accounts.

Mr. Draeger agrees. He spends $750,000 annually on utility services and says Mr. Kohl's intimate knowledge of rate structures has enabled Draeger's to save and conserve.

"Frankly, it's been because of a good education by Rick Kohl that we understand the degree of savings that can be enjoyed by even a mid-size company like us," he says.

Draeger's isn't the only success story. In 1994, PES went head-to-head with PG&E at the request of the University of California Board of Regents, who called Mr. Kohl when the University of California, Santa Cruz wanted to add new buildings to its campus. Of course, PG&E agreed to provide the service, but Mr. Kohl says the utility provider wanted to extend new power lines to the campus from Scotts Valley - through a grove of redwoods, no less. The cost: $3 million, not including the environmental impact report. In the end, PG&E agreed to feed power to the University for only $50,000.

And PES' negotiations for Paramount Pictures reportedly saved the Hollywood studio 28 percent on its telecom services annually.

In addition to contract negotiations, PES reviews billing histories to determine inaccuracies, monitors client accounts and request refunds from telecom and utility providers for overcharges. Mr. Kohl says PES typically charges 50 percent of a client's utility refunds or savings, while consultation fees are arranged on a per-hour or per-project basis.

Mr. Kohl says most of his clients just assume the bill is correct.

"What we have found is that it could have been wrong for a long time," he says. Indeed, in the early 1990s, PES filed a class-action lawsuit against PG&E for billing discrepancies that resulted in a $2.4 million refund for PES clients.

In April, PES added on-site power generation to its cadre of services by becoming the only representative in California qualified to sell Albuquerque, N.M., based Honeywell Power Systems Inc.'s Parallon 75 System, a quiet, gas-powered micro turbine that cogenerates electricity and hot water. The system is approximately $1,000 to $1,100 per kilowatt installed, not including the cost of natural gas.

Besides the financial advantages of a power source that can pay for itself within five or six years, the equipment has few moving parts; delivers high-quality, clean-burning power; reduces dependency on the power grid; and can stand alone in the event of a power outage - a major plus for businesses impacted by recent rolling blackouts on portions of the California grid.Mr. Kohl says studies indicate that over the next 15 years, more than 20 percent of the nation's power will come from on-site power generation.

"This is a major trend that's expected to continue," he says.

"Because of the high prices of energy, we think California is a fantastic market for distributed generation."

As for the competition, there isn't any. Mr. Kohl says his competitors are large electric houses that focus on megawatt power systems and firms spending $1 million a month on utility services.

PES may not have competition, but Mr. Kohl admits that getting investors to believe in the new product, the new technologies and the viability of the growth of the industry is always a challenge.

In the future, he says the company wants to be California's leading provider of distributed generating equipment and energy-consulting services. But until then, PES will just have to keep empowering its clients.

Michelle Hofmann is a freelance writer based in Los Angeles