Paenergypresentation11 17final 091118100127 Phpapp02

PA's Electricity Deregulation: How to Save Money with Electric Choice
Presenter: Richard J. Costello, PE, MSEM, BSME, CEM
President, Acela Energy Group
Live Webinar Sponsored by CrunchEnergy, November 17, 2009

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Sponsor: CrunchEnergy

Presenter: Richard Costello
President of Acela Energy Group
Former Power Supply Manager for the Massachusetts
Bay Transportation Authority
Senior Engineer in the Load Management
Department of Boston Edison
Past National President of the Association of Energy Engineers (2000)
2003 Energy Professional of the Year Award
2006 Inductee, Energy Managers Hall of Fame
M.S. in Engineering Management from Western New England College; B.S. in Mechanical Engineering from Northeastern University
Certifications:
Certified Energy Manager - Association of Energy Engineers (Instructor)
Certified Lighting Efficiency Professional - Association of Energy Engineers
Certified Demand Side Management Professional - Association of Energy Engineers
Certified Energy Procurement Professional - Association of Energy Engineers (Instructor)
Certified Green Building Engineer – Association of Energy Engineers
Certified Business Energy Professional - - Association of Energy Engineers ( Instructor)
Qualified Energy Analyst – Association of Energy Engineers

Agenda
The Electrical System
Pennsylvania Rules
Energy Procurement Process
Marketers & Brokers
Conclusion
Questions

Electric Power System: An Overview
Source: Duquesne Light

The Regional Grid: PJM
The Pennsylvania-Jersey-Maryland Independent System Operator (PJM)
is the Regional Transmission Organization (RTO) that operates the regional
transmission system and runs the associated energy markets

Average Retail Prices
8 of the 10 states with the highest (cents/kWh) average retail electric rates are located in the Northeast, with Connecticut ranking highest as of Sept. 2008.

Northeast Commercial Power Marketers

Electric Choice
Gives customers access to alternative electric generation suppliers (EGSs)
Utilities referred to as Electric Distribution, or “EDCs”
Utility bills unbundled into generation, transmission and distribution
Distribution charges billed to customers by utility regardless of supplier
Supplier remitted charges for generation and transmission charges (Price to Compare)
Distribution and transmission continue to be regulated charges (FERC and PUC)
Source: GDF Suez

Electric Choice
Source: Duquesne Light

PPL’s Competitive Bridge Plan, 2010
Large C&I Customers
Small/Mid-sized Customers
Large Customers
Small Customers

PPL’s Default Service Plan
Large Customers (Rate Schedules GS-3 >500kW & LP-4 with >=500kW, LP-5, ISP, LP-6, LPEP, IST, ISM & Standby Service) will be on Real Time hourly PJM Locational Margin Price (LMP)
Real Time Hourly LMPs plus admin costs, transmission, ancillaries and capacity
Proposal is pending to create a Monthly Fixed Price product, bid on a quarterly basis (price may vary each month, but prices will be set based on a quarterly procurement)
Additional details to follow
Small customers (Rate Schedules GS-1, GS-3 <=500kW & LP-4 >500kW, GH-1, GH-2, IS-1, BL, SA, SM, SHS, SE, TS, SI-1, and standby service) will have a Fixed Price
Fixed pricing set via 8 procurements
Set by blending procurements of spot market, 12-month, and 24-month supply contracts starting in 2009

PPL’s Small / Mid-sized Customers – RSP & RMP
Two options:
Rate Stabilization Plan (RSP)* - Covers 1/1/2010 – 12/31/2011
Rate Mitigation Plan (RMP) – Covers 1/1/2010 – 12/31/2011

2009 Timeline for PPL’s Power Purchase Option (1- year 2010 opt-in Plan for Large Industrial Users
July 27, 2009 – Deadline for customers to express interest in the one-year fixed-price option
August 24, 2009 – Request for proposals issued to suppliers
October 5, 2009 – Supplier bids due
October 8, 2009 – PA PUC approves results
October 8-9, 2009 – PPL Electric Utilities announces results, provides pricing information to customers
November 9, 2009 – Deadline for large customers to accept one-year, fixed-price option
Source: PPL Electric Utilities www.pplelectric.com/Commercial+and+Industrial/rate+options/Power+Purchase+Options.htm

Electricity Cost Components
Energy
Output of generator + losses & congestion
Majority of total energy cost
Volatile yet liquid
Determined by market forces
Delivery
Cost of moving energy from generator to meter
Smaller portion of total energy cost
Low volatility; tariff-based
Determined predominantly by regulatory bodies and ISOs

Electricity Cost Components - PJM
Source: GDF Suez

PJM – Capacity, Transmission, Ancillaries
Capacity cost – PLC demand * Reliability Pricing Model (RPM)
PLC is each customer’s Peak Load Contribution
You have some control over your PLC
PPL RPM costs:

Capacity
Transmission
Ancillaries
Line Losses (Distribution & Transmission)
Taxes (Gross Receipts)
Product Structures
Energy Structure
Fixed
Index + Adder
Real-Time
Day-Ahead
Fixed Blocks
Heat Rate
Volumes: full swing v. bands
Include or Pass-through Adders
Any or all of the adders can be combined into or excluded from the energy pricing structure. Know what you’re buying!

Energy Procurement Process

Who decides the path taken?
The Facility Manager
The Energy Manager
The Purchasing Department
The VP of Operations
The CEO
The Accounts Payable Clerk

Time and Resource Allocation Issues
Time to carry out the procurement process
Sufficient knowledge to comfortably carry out the process
Internal support of other departments within the institution
Funding available to acquire outside assistance if desired

Competitive Process
Create an Energy Team
Facilities
Accounting
Legal
Purchasing
Experienced consultant,
if desired

Assembling the Necessary Information
Non-Energy Related Information
Facilities physical information (maps, plant descriptions, etc....)
Financial information (annual report-type info)
Corporate general information (public relations- type material)
Gathered energy information and bills (very time consuming)

Assembling the Necessary Information
Energy Related Data
1 or 2 years worth of electric bills
Information from electrical time-of-day meters
15 minute data
Hourly data
Load profiles
Any other data available from the LDC
Some utilities charge for interval data, some do not

Determining Load Profile

How many power marketers will you solicit?
Are they licensed in the state?
National, regional, and/or local financial capabilities
ESP’s relationship to Local Distribution Company (LDC) & others
Which Energy Service Providers Do I Solicit?

Introduction
General conditions (typical)
Questions relative to Power Marketers (financial, existing clients, etc...)
Detailed questions on energy services
Pricing - methods to present pricing
Legal language - general corporate purchasing language along with specific power purchase agreement language desired
Energy Data - Properly presented in hard copy or preferably electronically
Writing the Request for Proposal

Issuing the Request for Proposal
Receive faxed or emailed confidentiality statements
Mail/email all request for proposals at the same time
Verification of receipt
Written questions received and answers distributed
Most power procurements are done via email

Reviewing the Proposals
Non Economic
ESP retail experience
ESP financial position
Strength in answering the RFP, references
Economic
Terms and Conditions of contract

Major Areas of Concern in Electric Purchasing Contract
Electric usage upper & lower limits - Bandwidth
Early termination and results, +/-
What are you actually buying? - Defined
Force Majeure
What does the term “Firm, All Requirements” mean?
Selling or buying a facility
What does “Reciprocal” mean? – Indemnification, liquidations
Exact term of the contract
Evergreen clauses
Credit requirements

The Power Purchase Agreement
Negotiate a contract with advantageous terms and conditions tailored to your particular load profile.
The proper terms & conditions are extremely important, oftentimes more important than price differences.
Once you are comfortable with several contracts, then begin to ask for prices.
Also keep in mind: The quicker you can make a decision, the less risk premium will be built in by the Power Marketer.

Selecting the Energy Service Provider
Notify the primary contender(s)
Notify the non-contenders
Provide appropriate feedback to all
You may end up soliciting these Power Marketers again

Power Marketers and Power Brokers
A Power Marketer generally has title to the power and is financially responsible to the customer for billing at the agreed-upon rate and contract terms and conditions
A Power Broker generally assists the customer on selecting the optimal Power Marketer with whom the customer should sign a Power Purchase Agreement

Caution When Using an Energy Broker
There are Energy Brokers that provide excellent services at fair prices.
However:
Many Brokers receive payments from the Power or Gas Marketer that they select for you, and they receive payments based on the number of kWh’s or Therm’s your company uses, not how much time they actually spent on the procurement process.
With this payment process set up, it is easy to see why many Brokers will suggest you sign on for the longest term, for they receive money for the entire length of the contract.

Caution When Using an Energy Broker
This type of payment method can lead to disastrous results such as:
Paying 10 to 50 times too much for the Energy Procurement Process!
Oftentimes, the Energy Broker is making more money than the Energy Marketer
Being told to sign long-term deals, when your company should absolutely not be signing a long-term deal
Brokers recommending the Marketer who gives them the most money, even though the energy purchasing contract may be terrible

If You Choose to Work with an Energy Broker…
Ask to see a copy of the complete and up-to-date Broker/Marketer Contract, for each and ever Power Marketer that the Broker is dealing with. If they don’t provided these contracts to you to review, do not use that broker, for they obviously don’t want you to see it.
And don’t let them tell you it is confidential, for that simply means they are terrified to let you see how much they are making!
Once you do get copies of these Broker/Vendor agreements, check for the total compensation the Broker is going to receive from the Marketer.
Also be aware of Brokers who sell through other Brokers who have agreements with Marketers, i.e., two middlemen! If this is the case, you need to see both contracts, Broker to Broker, and Broker to Marketer, to determine just how much you are paying for the energy procurement services.

If you do choose a broker…
You must insure the following in the contract you sign with the Broker:
You must get an electronic copy of the complete RFP sent to the Marketers.
You must get the name and contact information as to what Marketers were given an RFP for your company.
You must receive a copy of any and all documentation received from the Marketers to your broker, including response, energy purchasing agreements before and after negotiated by the Broker, and of course, pricing given.

Typical Pricing Example for a Supermarket

Review of Energy Procurement Process
Develop and facilitate client energy teams
Select qualifying energy service providers
Obtain the proper utility usage and demand data
Issue Request for Proposals to Energy Service Providers
Evaluate proposals –economical and non-economical
Negotiate Energy Purchase Agreements
Check LDC rules
Monitor energy service providers
Review contract adherence
Evaluate Prices; Fixed, variable or NYMEX based, ie timing
Analyze risk
Attention to LDC

Things to Remember
Always investigate all your energy usage alternatives.
Begin gathering your energy information now.
Start or complete selection of Energy Team Members.
Don’t forget about existing and future opportunities with the various LDCs.
Windows of Opportunities

Things to Remember
The competitive process has a successful history of generally providing the best results.
Treat the energy procurement process in a similar manner to other types of purchasing processes, yet understand the differences and risks associated with energy pricing.
Concentrate on the procurement process, and keep a good record of the process and the results.

CrunchEnergy: A few words
CrunchEnergy provides Power Broker (procurement) services – but we’re good guys!
We also provide energy audits
That’s just the beginning – we’ll work with you to find other ways your company could be saving on energy
Low-hanging fruit
Longer-term strategies

Thank you.Richard E. Costello, Acela Energy: richard.costello@acelaenergy.comScott Goldthwaite: info@crunchenergy.com -973.233.4862Rosanne Kinder, Bluebird University: rkinder@bluebirdu.com – 908.500.4732

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