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AEP Energy- The Complexity of Electricity Pricing Post Competition
 

AEP Energy- The Complexity of Electricity Pricing Post Competition

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Scott Slisher, President of Energy Marketing at AEP Energy, gave this presentation at the AEP Ohio Economic Development Forum on 9/17/12.

Scott Slisher, President of Energy Marketing at AEP Energy, gave this presentation at the AEP Ohio Economic Development Forum on 9/17/12.

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    AEP Energy- The Complexity of Electricity Pricing Post Competition AEP Energy- The Complexity of Electricity Pricing Post Competition Presentation Transcript

    • AEP Ohio Economic Development ForumSeptember 17th, 2012Scott Slisher, PE, CFA, LEED APAEP Energy9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 1
    • About AEP Energy• AEP Energy makes it easy for customers to buy, manage and use energy. A competitive supplier of power and energy management since 2002, we serve more than 180,000 customers and operate in 20 utility service territories across the U.S.• AEP Energy is a subsidiary of American Electric Power Co., Inc., one of the nation’s largest electric utilities and a Fortune 200 company• AEP Energys mission is to "help customers use less energy and spend less for it" has made us one of the fastest-growing energy suppliers in the country• AEP purchased BlueStar Energy Solutions in March, 2012, combining it with AEP Retail Energy to create AEP Energy 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 2
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 3 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Power Industry• Three major segments – Generation – Actual creation of the power – Transmission – Moving the power at high voltages to load centers – Distribution – Distributing the power at lower voltages for customer use9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 4
    • Industry Structure Generation Transmission Distribution FERC PUCO9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 5
    • Power Purchases• Retail customers purchase power from their local distribution utility – Rate schedules or Tariffs are the set prices for power service • IOU Rates are regulated by the PUCO • Municipals and coops can set their own rates – Customers can choose which rate structure they want • There are limits for eligibility based on customer size and type • Most customers don’t know that they can change rates – Rates have been increasing over time as utilities cost of business has risen • Environmental rules, aging equipment, reliability improvements,9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 6
    • Ohio IOU Territories Look up link:http://www.puco.ohio.gov/pucogis/address/search.cfm 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 7
    • Deregulation – Generation Costs• Ohio deregulated its power industry over 10 years ago… – Little activity since regulated rates were lower than market – Customers of Municipals or Coops are not allowed to shop• What is deregulation? – Deregulation allows customers of IOUs to choose (shop for) an alternative supplier for generation service • Distribution is still provided by the IOU – Customers who do not shop continue to receive “bundled” (generation included) service from their utility9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 8
    • How Shopping WorksUnbundled (shopping) Bundled (no shopping) IOU Service  IOU Service – Buy under regulated rate – Buy under regulated rate • Distribution (Transmission) • Generation • Transmission – Price is set by IOU with • Distribution PUCO approval – Price is set by IOU with Supplier Service PUCO approval – Buy under negotiated contract • Generation, Capacity, Transmission – Price is negotiated 9 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 10 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Reducing Power Costs Price = Gen & Trans + Consumption Cost Distribution Improving the Bottom Line – Reduce the commodity price (Generation) – Optimize Distribution costs – Reduce power and natural gas consumption to compounds savings9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 11
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 12 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Shopping Generation• Select Competitive Retail Electric Supplier (CRES)• Choose contract length (up to 3 years is norm)• Product options include: – Fixed price full requirements – Index – (various index basis) – Heat rates – Block Pricing – Good option for new operations – Renewables• Pass through options (capacity and transmission)• Change in law or loads• Credit provisions• A word on agents (brokers and aggregators)9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 13
    • Keys to an Effective Energy Supply Strategy1. Consider your physical (how and when you use power) and financial (how your energy spend affects your bottom line) profile.2. Always have a long-term strategy, even if you’re executing short-term purchases.3. Actively manage your energy supply portfolio to reflect changes in your business, how you use power, and market events.9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 14
    • Key Energy Market Factors • New EPA regulations will increase the marginal cost and reduce supply of coal-fired plants. Coal is a key intermediate and peaking fuel in most U.S. markets. • Significance of intermittent and costly renewables in the overall supply mix is increasing. Renewables are higher cost and require additional ‘back-up’ generation. • New supply of natural gas is generally from non- traditional, more costly sources. Non-traditional sources, such as shale, LNG, and offshore, require significant infrastructure spends for new pipelines, exploration, and regasification terminals.9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 15
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 16 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Tariff Selection• The IOUs have multiple rates and options that customers can select – Most customers don’t know that they can change rates!• The rate options are usually limited based on the peak load and the type of business• Typical options include – Time of Day rates – Seasonal rates – Time of Use rates – Interruptible power – Energy storage options9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 17
    • What Drives the Bill?kW – What was your top speed? kVARH – How often do you stop and start? kWh – How far did you go?9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 18
    • Distribution Rate Management• Customers can manage some portion of their distribution bill through demand controls – Monthly peaks are often of very short duration• Nature of service voltage and ownership are important – Where does the service start for the customer? – What is the cost for other service voltages? – What are the assumed loss factors?• Consolidating accounts can reduce peak demands and per account charges• Rates should be modeled for complete understanding9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 19
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 20 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • PJM Programs• PJM is the regional transmission operator for all of Ohio• Offers many opportunities for loads to make money or reduce costs – Demand Response – Reducing demand during emergencies – Economic Load Response – Change consumption for payments – Ancillary Services – Rapidly change load for payments• Customers can also reduce costs by managing their Peak Load Contribution directly – Capacity costs – Transmission costs (when not billed through tariff)9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 21
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 22 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Energy Projects – Reducing Volume• Investments in energy efficiency or distributed generation: – Reduce operating costs – Improve sustainability/Reduce GHG – Offer good PR• Energy Efficiency – Lighting, HVAC, VFD motors, refrigeration, servers, building and process controls• Distributed Generation – CHP, Solar, back up generation, waste heat recovery• Projects should be selected based on traditional measures and client preferences9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 23
    • Making Projects Work• Energy Efficiency projects are eligible for EE/PDR programs – Utility rebates, audits and other incentives – New facilities are also eligible (above code) – Also eligible for PJM EE capacity• EE projects may also qualify for Section 179d tax deductions (building improvements)• Renewable energy projects qualify for investment tax credits, participation in Renewable Energy Credit (REC) markets, and other incentives• All projects need to fully consider the complete impact on after tax cash flows9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 24
    • Topics Power Industry Overview Reducing Power Costs Generation Shopping Distribution Optimization PJM Programs Energy Projects Wrapping it up 25 9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.
    • Optimizing Power Costs forEconomic Development• Evaluate the distribution options – Econ development rates – Service voltage and accounts – Tariff options• Choose the supply option – Strategy first then supplier, product, and term• Evaluate the site – New build – energy efficiency selections and renewables, LEED requirements – Existing – benchmarking to identify energy efficiency retrofits• Select PJM programs• Manage the operation9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 26