Skip to content

Are You Getting the Most Out of Your Deregulated Energy Procurement Program?

Approximately one-third of the energy markets in the US have active deregulation, meaning that end-use utility customers can proactively manage the price they pay for electricity by contracting with competitive-retail energy suppliers.  Savvy commercial, industrial and manufacturing end-users realize that active participation in electric choice presents a competitive advantage for their company’s and the ability to manage-down their power costs over the long-term.  In addition, non-participation in deregulation often exposes a company to price-risk because many competitive marketplaces now only offer utility default rates that fluctuate regularly based on a variety of factors.

 What are the cornerstones for managing an effective energy supply management program?  This article focuses on six deregulated energy procurement tips to help company’s get the very most out of their supply-side energy management efforts.

1.     Don’t file away your energy contracts once they are completed

 This is the most important take-away from this article…do not shelf your contracts once they are completed.   Energy prices fluctuate every minute of the day, based on things such as weather, international events, competing economies demand for resources, natural gas supply & demand figures and speculation.  A good energy procurement program takes these market factors into account, watching constantly for the next price-dip so they can transact their contract renewal(s) at optimal market times.  These market dips can be very short-lived, so staying on top of them is the key to understanding when to act quickly by renewing deals when the market is down.  The alternative is like going to Vegas and putting everything on black…you are betting on the market conditions being ideal at the exact time of your contract renewal.

2.     Ensure proactive communication with your energy supplier throughout the term of contract

 Communicating things like facility production increases/decreases can help your energy supplier do a better job of managing their overall supply portfolio, and avoid surprises for you such as “bandwidth” penalties that are created to help suppliers manage the amount of power they secure in the forward market.  Facility closures, relocations, facility retrofits, or demand response participation can also impact the energy consumption patterns of your facilities.  A program that is proactive in nature should include consistent communication with your suppliers, providing these heads-up to ensure all parties are informed of energy consumption deviations from the past.

3.     Benchmarking your deregulated energy deals requires some up-front analysis

 Measuring deregulated savings can be a tricky feat, especially since many default rates provided by the utility companies are a moving target.  Picking apart the utility tariff is the first step in this process and takes a lot of research to ensure you are comparing your supplier prices to the correct utility rate components. Contacting your local utility company for information about proposed future rate increases/decreases can also help you hone-in on the economics of your supplier quotes vs. the regulated utility rate.  In addition, it is helpful to understand how the new price quotes stack up against any existing and/or previous rates you had in place.

4.     Ensure that the suppliers are bidding apples-to-apples

 Be diligent while comparing supplier bids and ask these companies, which are competing for your business, to provide you with a breakdown of all components that are included in their quote.  For example, if the supplier is quoting a fixed price, does it include line losses, bandwidth restrictions, resource adequacy and other market specific requirements like renewable portfolio standard (RPS) items?  While one supplier may include these components within the fixed-price, another may not and therefore they should be considered “pass-thru’s” and still accounted for in the overall price you will eventually pay.  If a supplier price looks too good to be true, it’s worth your time to dig into these price components to ensure you truly getting the best deal.

 5.     Implement proactive contract measures

 This procurement cornerstone is similar to number 1 in this article.  Don’t rest on your laurels after the deal has been completed and file away that contract into your archives.  Once the initial contract has been completed, it is the perfect time to negotiate proactive contract measures & addendums, such as a strike price addendum.  This will allow your supplier to help you proactively monitor market conditions because if they can achieve your desired & lower strike-price, they will be authorized to automatically wrap-up the deal for an additional term.  It’s a win-win for all parties involved.  In the long run, this proactive approach will help you to manage-down your energy costs over time and allow the supplier additional future business.

6.     Understand specific deregulated market rules

 California is a great example of a deregulated market that presents so many participation nuances that is almost makes it too intimidating to play.  Rules such as their annual capped lottery system, where you have to prepare various signed documents, zip the files just so, get the correct boxes checked on the forms and be ready to pounce on your computer “send button” at 9:00 a.m. Pacific Time one day each year makes this a difficult market to maneuver.  Become educated in the markets where you participate and it is will help shield you from some of these market risks, such as giving the utility 6-months notification to come back to their service, or being placed on their spot-market rate that could lead to budgetary disaster.

Rachel Schafer

Rachel Schafer is the Director of Client Services at Utilities Analyses Inc. and has over 13 years’ experience in the retail energy industry.  Her background consists of roles that have focused on delivering sustainable energy strategies and deregulated contract savings & price mitigation strategies to Fortune 500 National Account clients.

Since 1986, UAI has provided energy supply management services that reduce utility costs for multi-site industrial, commercial, and governmental customers.  UAI’s core team of unbiased utility rate analysts and deregulated energy procurement experts manage over $2 billion in annualized energy spend and are focused on lowering the cost of utilities for end-use customers. UAI’s comprehensive energy cost management services include deregulated energy procurement, utility rate analysis, utility bill auditing and overall utility bill processing services that result in reduced energy costs and measurable utility savings. For more information on Utilities Analyses, Inc., visit www.utilitiesanalyses.com

Has the Outlook Dimmed for Electricity Generated from Renewable Resources?

Several recent developments have dampened the attractiveness of projects that use renewable resources for the generation of electric power. These drags have occurred at the legislative, energy production, and power grid levels.

Legislation to extend the Federal Production Tax Credit (PTC) for generation from renewable resources has not materialized. The PTC reduces the federal income taxes on renewable energy projects for a ten-year period subsequent to project installation. Since its initial enactment in 1992, the PTC has been periodically extended by Co

Renewable Energy Resources

Renewable Energy Wind Turbines

ngress. However, to date, the current PTC has not been extended. Unless it is, wind projects placed in service after this year, and other projects completed after 2013 will not be eligible for this critical contributor to the profitability of power production from renewable energy. Given the extensive required lead times for many renewable energy projects, if the PTC isn’t extended soon, delays and cancellations of planned projects will probably begin to occur.

At the state level, legislation has been proposed to repeal Ohio’s renewable portfolio standard, which requires utilities to procure one-quarter of their power from renewables by 2025. Enactment would reduce severely the demand by utilities for renewable energy projects in that state. Florida is considering a repeal of its directive to the state’

s public service commission to devise a renewable portfolio standard. The repeal efforts in both states are being driven by fears that renewable energy will boost electric power rates, and in turn retard job growth.

The country is awash in natural gas due to the shale gas revolution. The result has been low prices for the fossil fuel. The price of natural gas is a prime determinant for the revenues produced by many renewable energy projects. As with the uncertainty surrounding the PTC, the degradation in the price of gas threatens project profitability.

An oversupply of renewable power in the Pacific Northwest last year, caused by vibrant hydropowe

r output induced by rapid snowmelt, prompted the Bonneville Power Administration to shut down wind farms for nearly 200 hours. BPA is offering to compensate farm owners for one-half of their lost revenue. While this situation is unlikely to occur elsewhere, it certainly creates an ongoing risk to the profitability of renewable energy in this region of the country.

Threats to renewable energy could lessen. A vibrant economy may serve to renew project subsidies via the PTC, and to tamp-down repeal efforts at the state level. The EPA could restrain hydraulic fracturing of natural gas wells. The resulting gas production slowdown would raise the commodity’s price, and would augment the finan

cial characteristics of many renewable energy projects. Over time, renewable energy solutions for electricity generation may improve. Major efficiency enhancements would negate economic concerns and render subsidies unnecessary. Nevertheless, there are currently enough problems plaguing the renewable energy landscape to cause one to wonder if it will prove to be a major constituent of the country’s energy supply.

Since 1986, UAI has provided energy supply management services that reduce utility costs for multi-site industrial, commercial, and governmental customers.  UAI’s core team of unbiased utility rate analysts and deregulated energy procurement experts manage over $2 billion in annualized energy spend and are focused on lowering the cost of utilities for end-use customers. UAI’s comprehensive energy cost management services include deregulated energy procurement, utility rate analysis, utility bill auditing and overall utility bill processing services that result in reduced energy costs and measurable utility savings. For more information on Utilities Analyses, Inc., visit www.utilitiesanalyses.com

Electric Deregulation Pilot – Give it a Try: States with Fully Regulated Electricity Should Experiment with Deregulation

The price of power is of utmost importance to the country’s economic well being. Every effort should be made to mitigate its cost. Electricity deregulation (also known as direct access) has been seen as a possible avenue to the realization of this objective. While results have been mixed, increases in the price of power in some deregulated states have been less than those for the country as a whole. The following table compares the rise in the price of electricity during 2005-2010 for some deregulated and fully regulated states. Disparities are dramatic:

2005-2010 Compounded Annual Growth Rates in the Price of Electricity

Growth Rate

Index

(US Equals 100)

Deregulated States

Massachusetts

New Hampshire

New York

Rhode Island

Texas

Regulated States

Alabama

Georgia

Indiana

Kentucky

North Carolina

South Carolina

Wisconsin

US Average

3.2%

3.4%

3.3%

3.3%

0.4%

6.6%

3.6%

5.5%

6.1%

3.8%

4.8%

5.5%

3.8%

 –

84

 89

 87

 87

 11

174

   95

 145

 161

 100

 126

 145

 100

Clearly the deregulation of electricity has served to moderate price increases in some states.

Deregulation is showing signs of renewed growth. Arizona Public Service will likely institute a four-year pilot program this year. California will consider a further reopening of direct access.

Other states should investigate the viability of direct access for customers of electric utilities. States should conduct carefully monitored and extensively evaluated pilot programs. If  after a fair real world trial, deregulation is shown to be inappropriate for a given state, then so be it. However, if states do not obtain firsthand experience with direct access, it is possible that an opportunity will be missed to obtain the lowest possible electricity costs for their residents and businesses.

Ken Eisdorfer

Since 1986, UAI has provided energy supply management services that reduce utility costs for multi-site industrial, commercial, and governmental customers.  UAI’s core team of unbiased utility rate analysts and deregulated energy procurement experts manage over $2 billion in annualized energy spend and are focused on lowering the cost of utilities for end-use customers. UAI’s comprehensive energy cost management services include deregulated energy procurement, utility rate analysis, utility bill auditing and overall utility bill processing services that result in reduced energy costs and measurable utility savings. For more information on Utilities Analyses, Inc., visit www.utilitiesanalyses.com

Customer Renewable Energy Generation, Utility Profitability, and Rate Levels… An Instance of Unintended Consequences?

Despite its attractiveness from a societal perspective, widespread adoption of renewable generation by households and businesses can threaten utility profitability and possibly increase rate levels to customers. Indeed, at least one electric utility, Hawaiian Electric Co., had considered filing a rate case to recover lost revenues that had formerly been paid by customers who now generate a portion of their power requirements via solar energy. HECO had indicated that the associated degradation in profitability would cause it to seek recovery of the lost revenues via higher rate levels. (HECO subsequently decided not to file the rate case, but it is not inconceivable that the issue might Green Energy Solutionsonce again come to the fore for the utility.)  Utilities in other states with extensive solar installations per capita (e.g., Public Service Electric and Gas in New Jersey, NV Energy in Nevada, and Southern California Edison) could face similar profitability concerns. The results could be rates for residential and business electric customers that would be higher than they would be otherwise.

However, as described in the identically titled article that appears in the “Article” section of this website, utilities can proactively avoid much of the negative impact through proper cost assignments to customers, and appropriate rate design. Also, one must not lose sight of the fact that over the long-term, extensive solar energy generation will lessen the need to expand utility bulk power systems, which will accrue to the benefit of all ratepayers. Also, utilities should be able to reduce the operation of their least efficient existing generation assets. Consequently solar energy generation by customers is not a detriment, but is a renewable energy service that will provide advantages to utilities as well as to ratepayers.

Since 1986, UAI has provided energy supply management services that reduce utility costs for multi-site industrial, commercial, and governmental customers.  UAI’s core team of unbiased utility rate analysts and deregulated energy procurement experts manage over $2 billion in annualized energy spend and are focused on lowering the cost of utilities for end-use customers. UAI’s comprehensive energy cost management services include deregulated energy procurement, utility rate analysis, utility bill auditing and overall utility bill processing services that result in reduced energy costs and measurable utility savings. For more information on Utilities Analyses, Inc., visit www.utilitiesanalyses.com

Ken Eisdorfer

Demand Response in PJM: An Excellent Way to Mitigate Power Expenditures

Customers within the eastern portion of PJM’s footprint (New Jersey, Maryland, Delaware, the District of Columbia, and eastern Pennsylvania including the Philadelphia area) currently have an excellent opportunity to significantly reduce their net power expenditures by participating in the regional transmission organization’s Demand Response Program (DR). In exchange for agreeing to curtail a portion of their load, which can be as small as 100 kilowatts, PJM pays DR participants monthly for their involvement. Curtailment events can occur during June through September. However, there have been only thirteen events during the past ten years in the eastern portion of PJM. Some years (2003, 2004, 2008 and 2009) did not have any events. The average duration of an event was about five hours.

Representative annual payments within PJM’s eastern footprint for each megawatt of load committed to DR during the next two program years are:

 Annual Gross Payments to Customers per Megawatt

 

 

Utility Service Territory

June 1, 2012

through May 31, 2013

June 1, 2013

through May 31, 2014

Atlantic City Electric

Baltimore Gas & Electric

Jersey Central Power & Light

Philadelphia Electric (PECO)

Pepco

$51,001

$48,680

$51,001

$51,001

$48,680

$89,425

$82,545

$89,425

$89,425

$90,206

 

Payments for participation in the western portion of PJM (Ohio, Virginia, West Virginia, western Pennsylvania, the Chicago Area, plus small portions of Indiana, Kentucky, Michigan, North Carolina and Tennessee) will be much smaller ($6,008 per megawatt during the 2012/2013 program year, and $10,121 for 2013/2014). However, they will increase to a robust $45,797 per megawatt during 2014/2015. This will present a good opportunity for customers of AEP, Allegheny Power, Dominion Power, Duke Energy – Ohio, and First Energy – Ohio to reap a major benefit from DR.

UAI possesses a wealth of experience with PJM’s DR program. We can explain the program in detail, and assist our customers with their involvement. Please don’t hesitate to call on our expertise.

Since 1986, UAI has provided energy supply management services that reduce utility costs for multi-site industrial, commercial, and governmental customers.  UAI’s core team of unbiased utility rate analysts and deregulated energy procurement experts manage over $2 billion in annualized energy spend and are focused on lowering the cost of utilities for end-use customers. UAI’s comprehensive energy cost management services include deregulated energy procurement, utility rate analysis, utility bill auditing and overall utility bill processing services that result in reduced energy costs and measurable utility savings. For more information on Utilities Analyses, Inc., visit www.utilitiesanalyses.com

Blog Author: Ken Eisdorfer

Ken Eisdorfer Named Senior Director of Strategy and Research

UAI is pleased to announce the addition of Ken Eisdorfer to our talented team.  Read the complete  story about Ken and his new role here.

 

Welcome Ken!

Merry Christmas from Utilities Analyses

At this joyous time of year, all of us here at Utilities Analyses Inc. have been reflecting on the many blessings in our lives.  We count our relationships with each of you among our many treasures.  

But it is the True Giver of all blessings to whom we are most grateful.  During this very busy time of year, we hope each of you takes time to pause and reflect on the true meaning of the season – the gift of Christ the Savior, whom we celebrate. As recorded in the Bible, Paul wrote to the Church in Rome:

“But now God has shown us a way to be made right with him without keeping the requirements of the law, as was promised in the writings of Moses and the prophets long ago. We are made right with God by placing our faith in Jesus Christ.  And this is true for everyone who believes, no matter who we are.  For everyone has sinned; we all fall short of God’s glorious standard. Yet God, with undeserved kindness, declares that we are righteous.  He did this through Christ Jesus when he freed us from the penalty for our sins.”

Each of us benefits from His Grace, which is a truly undeserved gift. And although undeserved, Utilities Analyses Inc. has enjoyed considerable success this past year in realizing growth in clients served, new additions to our staff, and increased revenue. 

We pray that God’s richest blessings fall upon you and your families this season and may the light of His Grace shine brightly in your life this coming year.