What is a Load Profile and why is it Important?

A load profile defines how an electricity customer uses its electricity over time. It is created using measurements of a customer’s electricity use at regular intervals, typically one hour, thirty or fifteen minutes, and provides an accurate representation of a customer’s usage pattern.

Since this requires the use of expensive interval meters, for most customers utilities conduct load studies using interval metering on samples of customer groups or segments and use the results to represent the segment’s usage pattern. Unless you have an interval meter, your load profile, for electricity supply pricing purposes will be based on your Rate Code Average Load Profile and your month-by-month total usage.

A basic fact with electricity pricing is that prices are lowest at night and on weekends.  A fixed price is determined by creating a weighted average price for your electricity usage for each interval and the cost of electricity for that time period.  Since nights and weekends have the lowest cost, the more relative usage during these periods, the lower your average cost will be.

Let’s look at some examples:

Residential-Load-Profile

 

This is an average residential load profile.  You can see that the usage peaks are between the hours of 5PM and 10PM, when people come home from work, watch TV, etc.  Usage then drops off, with the lowest point at 3:00AM.  You may say, “All my lights are off at that time!”.  Remember, these numbers are averages of all residential users.  Many are night-owls.  Some work second shift jobs.

What is important to understand is that this is the average load profile that is used when pricing residential electricity.  This graph will vary with your geography, since heating and air conditioning uses electricity, with difference kWH requirements depending on our weather.

GS1-Small-Bus-Load-Profile

This is the load profile for a Small Business customer.  Note that the maximum usage is between the hours of 8:00AM and 4:00PM.  This is when electricity is most expensive, so the average cost will be higher than a residential customer, in most cases.

GS2--Business-Load-Profile

Large Commercial Users will have an average load profile like this one.  Again, note that the maximum usage is between the hours of 8:00AM and 4:00PM, which is when electricity is most expensive.

The primary difference from the small commercial user is that there is a much more significant amount of electricity used during the peak periods.  As a result, the price will likely be higher than the small commercial customer pays, since the weighted average of usage by hour, will be skewed toward the peak hours.

3-Shift-Mfgr-Load-Profile

This load profile is for a manufacturer that is operating with three shifts.

Note that their electricity usage varies very little during the entire 24-hour period.  From a supplier perspective, this is a very attractive load profile.  The high usage during the off-peak hours will help this customer obtain a much lower price, if they obtain a competitive supply contract.  If they do not get a contract, they will be short-changing themselves by not taking advantage of their preferential load profile to reduce their electricity costs.

In Summary, your company’s Load Profile has a major impact on your electricity price.  If you wonder why it is so difficult to simply call a supplier and get a price quotation the phone, this is one of the reasons.  Getting the best price for your electricity supply is more complicated than most people realize.  Just one more reason why an experienced broker can help you navigate the energy procurement process.

 

 

Why long term electricity contracts in PJM service area make sense

The inexperienced electricity buyer looks just at the price and goes with the lowest price. In today’s market (April 2012), shorter term contracts have the lowest price. But taking this approach can be short sighted. Why is that the case? First off, when you want to get a new contract in a year, your price will likely be a lot higher. As long as you know that, fine.  But there is more to understand.

In the PJM service area, one component of your fixed price are future capacity rates and trends. We are encouraging our customers to consider the longest term possible, up to a 24 month term, up to the period ending May 2015, to blend low energy prices against higher capacity rates. Locking in a longer term will protect you from the capacity price increases, which are a known number. So even if the energy cost is the same, the electricity prices will rise because of the rising capacity charges.  The higher capacity charge from next year is averaged into the present cost, which is one reason a longer term contract costs a bit more.  But when you look at your total cost over the 24-month period versus what they would be otherwise, based on the direction of the economy, you will win big overall and protect your budget.

PJM Capacity Cost Component

· June 2012/May 2013 $131.48 Per MWH
· June 2013/May 2014 $227.11 Per MWH
· June 2014/May 2015 $136.50 Per MWH
· June 2015/May 2016 Unknown at this time

· Capacity rates (set three years in advance by PJM) have increased to over $227 level for your next capacity rate contract term

· Recovering economy should keep capacity rates at least to the 2014/2015 level when PJM conducts next auction in May ‘12

· EPA’s plan for MAT (Mercury Air Toxin) rules have driven several generators to close 50’s vintage power plants due to high compliance cost coal plants exerting upward pressure on next auction. Less coal generation means higher prices, but cleaner air. Another reason to lock in a longer term contract.

Capacity charges are typically calculated based on the difference between a customer’s peak energy use during a billing period and their nominal use (normal or hour-to-hour use) during the same period. If the customer expects to have substantially more power available to them than they actually use, then a demand charge is applied to cover this difference.

Demand charges are not a means of gouging customers by charging for unused energy. Instead they are a means of insuring that customers can have larger-than-normal supplies of energy available to them at a moment’s notice.

Keep this information in mind when deciding what contract length you want. Take a long term view and next year you’ll be smiling at the decision you made. Consider the slight increase that you will pay in the short term your price for insurance against rising prices. Insurance costs money. Would you go without fire insurance because it costs money and you have never experienced a fire?