Your Electricity Pricing Options
There are a wide variety of ways to contract your electricity supply. Each option has different risk/reward profiles. Better Cost Control will assist you on selecting the best option for your company based on your financial goals.
This option provides the customer with a fixed price for the entire term of the contract. There are no hidden costs or adders to surprise you. The price includes the cost of energy, capacity, congestion, Daily RMR, renewable portfolio requirements, reserves, regulation, and all other ancillary expenses. It gives customers the most budget certainty and shields them from market price volatility.
Best for customers with fixed budgets who want to lock in energy costs for an extended period of time or cannot accept price volatility. Risk profile: Low market price exposure
This option fixes the cost of the actual electricity supply, but passes the ancillary costs to the customer directly. Ancillary costs are difficult to predict and depending on your location, can include capacity, congestion, Daily RMR, renewable portfolio requirements, reserves, and regulation. The result is control of the volatile supply cost, while you pay the actual ancillary charges. In many cases, this will be less expensive that the all-inclusive price, since the supplier, not knowing the future cost of the ancillary fees, must price things accordingly to assure that they do not lose money.
Best for customers that want to fix the majority of their energy cost, but are willing to accept some uncertainty on the cost of the ancillary fees and pay only the actual fees. Risk profile: Low market price exposure.
Index Pricing is a variable price option whereby customers pay based on their hourly consumption and the hourly ISO New England energy market clearing price. Non-energy costs are covered in a fixed price ‘adder’, some of which can be treated on a cost-pass through basis. Customers can convert some or all of the variable priced component to a fixed price at any time.
This is ideal for customers who think that the cost of energy is going to decrease in the future and therefore do not want to be locked-in at a fixed rate. This is also beneficial for businesses that can curtail their energy use during periods of high prices. Customers choosing this product, however, accept all risk for market price volatility including the possibility of general increases in market prices and the possibility of significant price spikes when system conditions are stressed. Risk Profile: High market price exposure. High risk and potential high reward.
If you are accustomed to hedging natural gas and/or have revenues that are linked to natural gas, a Heat Rate Solution allows you to take advantage of your knowledge and energy market experience. In markets where much of the electricity is produced by natural gas fueled power plants, the price of power is closely tied to the market price of natural gas. Therefore, hedging through Heat Rate Pricing offers your company more price transparency. Future power prices are directly indexed to natural gas prices, via a heat rate, for the life of the contract. Your company must be comfortable buying natural gas futures, so this approach is only suggested for large users of electricity. Risk Profile: Experienced risk managers. Customer hedges risk with futures through their own risk managers and traders..
Block and Index pricing is designed for customers that want to limit their exposure to complete LMP Index Pricing by augmenting it with a block purchase. The block purchase will be a fixed quantity and price that will cover a certain portion of the customer’s load. The supplier will settle the customers’ incremental hourly consumption above the block against the hourly energy market clearing price and non-energy costs will be covered by a fixed ‘adder’.
This approach is right for customers who do not want to have their entire energy supply locked-in at a specific rate. It allows for customers to be partially exposed to market price volatility, while hedging the remainder of their load at a fixed rate. This is also ideal for customers that desire to reduce their energy requirements during hours of high prices. The size and make-up of the block is at the customer’s discretion and will depend on the customer’s risk tolerance. Risk Profile: Medium market price exposure.
With Trigger Pricing, the customer tells Better Cost Control what market price they want to lock in a contract. When (and if) the forward market reaches that price, the contract is locked in. Customers may contract LMP Index Pricing while they wait for their trigger price.
This approach is ideal for customers that have a specific price in mind and have the risk tolerance for LMP index pricing in the interim. You must believe that market prices will drop to utilize this approach. Risk Profile: Medium market price exposure.
Tranche Pricing is similar to Dollar Cost Averaging for investors. The customer initially uses LMP index pricing and then locks in various percentages of their electrical load into fixed price contracts, over a period of time.
This reduces the anxiety of timing the market trying for the lowest price, which is nearly impossible to accomplish. You are partially hedging against short-term price swings while having the ability to lock in lower forward market prices later. Risk Profile: Medium market price exposure.