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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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
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:
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
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
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