BGE says energy prices will rise for electricity customers

Baltimore Gas and Electric Co. said Thursday that electricity prices will rise for customers who don’t use an outside power supplier, the first jump in energy prices in four years.

That rise in costs, running from June through next May, 2014, comes on top of a distribution-rate increase approved in February.

BGE attributed the electricity price increase to rising natural-gas prices, among other factors.

“We fully understand that cost increases are never welcomed,” said Robert L. Gould, a BGE spokesman. “But we really encourage our customers to help offset the increase.”

One strategy: Shop for another energy supplier.

BGE said nearly 40 percent of its electric customers use third-party companies for their power supply.

The price of natural gas, one of the fuels used to create electricity, plunged in recent years but is on the rise. It cost electric utilities about 16 percent more for natural gas in February than it did the previous year, according to the most recent data from the U.S. Energy Information Administration. The industry’s cost for coal and petroleum dropped modestly during that period.

BGE said customers’ energy costs will be nearly 8 percent lower from June through next May than they were in the 2009-2010 period, thanks to drops in the intervening years. The new price is 14.6 cents per kilowatt hour, compared with 15.8 cents four years earlier.

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.

 

 

What is Index Pricing? Is it worth considering?

When most companies contract their electricity, they obtain fixed price contracts to hedge or protect their business from price fluctuations. In essence, they are paying a small premium for price insurance, providing the guarantee that their electricity price will not increase for the entire term of their contract.

But some companies are OK with some risk.  They believe that the energy markets are not likely to increase in price over the near term.  If this is what you believe, you might want to consider a variable or index priced electricity contract.  Your price will change month-to-month, but you will be buying exactly what the market charges.  This post is intended to educate you on a what can be a confusing subject.  Customers of some suppliers of index products might have been mislead by their sales people.  Our goal is to make sure that every customer understands exactly what their options are.

An Index Price Contract is based on the LMP (Locational Marginal Pricing) Index price, which is readily available by viewing the Independent System Operator (ISO) websites.  This is the wholesale price of electricity which changes every fifteen minutes.  Your price for the month will be based on how much electricity you use during every fifteen minute period of every day, times the LMP price for that fifteen minute period.

typical_load_profile

The process may seem complicated at first, but it starts with your Rate Code.  Your Rate Code tells the supplier what your Load Profile looks like.  A Load Profile defines how a customer uses its electricity every hour of the day and every day of the week for 365 days in the year.  Most businesses have the majority of their electricity usage between 8AM and 6PM.  Their weekend and night usage is typically lower.  So their load profile defines this.  A manufacturer running three shifts would have a very different load profile.

Your company may have an Interval Meter, which records your electricity in fifteen minute increments.  This data is used to create your Load Profile.  Most smaller users, with under 1,000,000 kWH/year of usage do not have an Interval Meter, so their load profile is defined as the average for all users in their Rate Code category.

Why is the Load Profile important?  Because with Index Pricing, you will be charged based on the LMP price for every fifteen minute period.
Hourly-LMP-Graph

 

 

This graph on the right shows you what the Real-Time LMP price is, for this particular day in the ISO-NE zone.  The price you pay will be based on this information,

Now to an example:

  1. Assume you use 100,000 kWH in a given month.
  2. Your load profile can be used to determine how many kWH you use every fifteen minutes.
  3. Your kWH usage for that fifteen minute period is multiplied by the LMP price.
  4. A total for all the fifteen minute periods is added up.
  5. Finally, the ancillary charges are calculated and added to the bill.

Index Pricing has risk.  You will experience months with very low price, while other months will have very high prices.  On average, for a one-year period, you will likely save money.  But you must have the emotional comfort to understand that prices could fluctuate widely from month to month.  For this reason, Index Pricing is not usually for the small business customer, unless they really understand how it works.

For large electricity users, a Block and Index contract gives them the best of both worlds: you obtain a fixed price for a specified block of kWH usage and then pay the floating index price for the remainder.  This allows you to limit your risk exposure to rising prices (the block price) while benefiting from possible drops in prices with the index.

Finally, the chart below shows the Real-Time LMP price in MWH.  You divide the number by 1000 to calculate the per kWH price, before adding ancillary fees, which will add roughly $0.02 to the kWH price.  Please contact us if you would like to learn more about electricity and gas pricing option.

FIve-Minute-Real-Time-LMP

New York Capital Zone Electric Rates Nearly Double in Jan and Feb 2013

Nimo Pricing

Electricity customers in the  National Grid NiMo Zone F (Capital Zone) have seen their rates skyrocket in Jan and Feb  from ~$0.06 to over $0.12 per kWh.

In the 2012 Tariff Filing Letter, the proposed action states that:

“The Public Service Commission is considering whether to approve or reject, in whole or in part, revised tariff leaves filed by Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara Mohawk”) that would increase the Company’s electric and gas base delivery revenues by $130.7 million and $39.8 million, respectively, effective April 1, 2013, and make other tariff amendments and accounting changes.”

Customers in Upstate New York should understand that fixed rates are in the $0.055 to $0.065 range for 12 months.  You can completely eliminate price fluctuations by contracting your electricity supply instead of dealing with the volatility of monthly pricing.

To obtain a fixed price electricity price quotation, contact Better Cost Control.  We represent all the suppliers, so you can be assured of the lowest prices with the best contract terms.

New Jersey Electric Rates to Change

The NJ State Board of Public Utilities on Thursday approved the results of state’s annual electricity auction. It sets the wholesale electricity prices that the state’s electric utilities will pay and pass through to all New Jersey customers.

For three of the state’s four utilities, including Jersey Central Power & Light and Atlantic City Electric, there will be a  decrease in supply rates on June 1.  Rates for for PSE&G will be essentially the same.

Average JCP&L ratepayers will see a decrease of 3 percent; Atlantic City Electric customers will see a decrease of 5.35 percent and PSE&G customers will see their average rates increase by .05 percent.

The price of wholesale natural gas, which powers electric plants, is lower than in 2010. Since 2009, average energy costs for  small and medium-sized businesses have fallen about 30 percent, the BPU said.

But whether prices continue to fall in future years is unknown. “We have seen relative price stability in the last couple of years,” Hanna said. “What is going to happen in the future with natural gas prices is very difficult to predict.”  This is why fixed price contracts provide the opportunity to lock in long term fixed prices to protect from increases.

The value of both electricity auctions was about $7 billion, which represents approximately 8,700 megawatts of electric generating capacity.

Making Sense of the Present Electricity Market

Transformer-252-x-575

  • Regional issues are ruling the day, when it comes to understanding today’s electricity market– gas & power correlations remain critical, but we continue to see increased frequency of separation.  There are fundamental factors that are behind this trend:
    • Northeast basis – too much info on this to put in this blog posting, but the short-story is that the region is short gas pipeline capacity and this year’s cold temps and pipeline constraints have caused huge gas spikes to New England (several days in $20-30 range) and to a less extent New York Zone 6 (>$20).  Day-ahead power has moved with gas with some spikes near $200/MWh. This is impacting long-term prices.  Unfortunately, the pipeline constraints are unlikely to be resolved in the near-term.
    • ERCOT Resource Adequacy – this issue is also not going away as ERCOT is expected to remain below is target for reserve margins and the increased offer caps are not expected to resolve the problem.  So do not expect summer premiums to disappear and there will be ongoing discussion on solutions to the problem.  Regulatory news and summer price spikes will both impact forwards.
    • PJM Capacity –the wholesale energy prices in the market remain low, but capacity prices vary greatly within the ISO – rising for most of the West and falling for the East over the next 2 years with certain areaa having exceptional spikes (ATSI).  Note that we have updated capacity charts that clearly illustrate this trend.
    • California Cap & Trade & SONGS outage- ongoing strength in forwards as Cap & Trade has been implemented and there is still tremendous uncertainty regarding SONGS, which has been shut down for almost one year.
  • Customer message:  The overall message is straightforward, but may be difficult for customers to accept since many have had consistent year-over-year price declines since the peak of 2008.
    • Year-over-year declines in gas have stopped with 2012 likely being the bottom.
    • Rangebound gas behavior for the near-term with modestly higher prices possible for 2014.
      • It makes sense that natural gas futures are higher than a year ago, but below long-term averages.  And we expect this to continue.  So don’t count on another spring dip – it is very unlikely to see a repeat of April 2012.
    • Both upside and downside are limited by coal-to-gas, production economics, storage, etc.
    • Regional fundamentals are causing significant regional risks that must be considered.  If you only focus on natural gas, you are exposed to significant regional risks such as New England winter spikes and ERCOT summer spikes.
  • Regional issues may provide a better rationale for customers to contract their electricity now.

The truth about reverse auctions for electricity

If you have been doing research about buying electricity, you may have heard about Reverse Auctions.  Reverse Auctions are auctions where suppliers bid against each-other with a lower price. The bidding ends when the electricity price reaches a point where it will not go any lower.  The buyer ends up with the lowest price for their electricity.  This works, in many cases, with very large users.  If your annual kWH usage is less than 10,000,000 kWH/year and you think you are participating in a reverse auction to buy your energy, think about the man behind the curtain in the Wizard of Oz.  You are experiencing smoke and mirrors. You are being conned, plain and simple.

You see, for an electricity supplier to compete in a reverse auction takes resources. Think costly man-power.  Think preparation time.  Small deals just are not worth the time.

So how does the reverse auction work for these customers?   There are three approaches:

1. For customers with less than 1,000,000 kWH/year of electricity usage, the broker with the reverse auction web site has their site populated with the daily matrix prices for the various suppliers that they have broker agreements with.  The reverse auction software then adds a penny or two to these prices.  Then the auction starts!  The customer watches with excitement as the computer (not bidders!) reduces the prices in small increments among the bidding suppliers.  Finally, the price feverishly decreases until it settles and goes no lower.  The customer feels like they saved a bundle.  But guess what?  That price is the matrix price that the customer would have gotten without the auction.  In fact, the price is actually a slight bit higher than if the customer used a broker that didn’t have the overhead of the fancy web based system.  How do we know this?  Because we have been in this business for over ten years.  We know the people who manage the brokers for the big electricity suppliers.  We have discussed this at length when we were thinking of including reverse auctions into our business model.

2. For customers with 1,000,000 kWH to 10,000,000 kWH of electricity usage, the broker gets custom pricing, as ANY broker would do.  All suppliers need to provide custom pricing based on your load profile at this level.  Again, the broker with the reverse auction platform feeds the custom pricing into the web system, the prices are inflated and the same scenario takes place as it did for the customer in #1 with less then 1,000,000 kWH.

3. For customers with more than 10,000,000 kWH/year in power usage, they will really experience a true and honest reverse auction, because it is worth the time for a supplier to put the time and energy into it. But, guess what?  Those suppliers know what their bottom line price will be, regardless.  They enter that price as the lowest they will go.  They start at a high price that is 30% more than their lowest price.  The customer has the excitement of watching the price go down.  They are proud of how smart they are to have used a reverse auction.  They get a pat on the back from their boss.  But what they don’t realize is that the price they ended up with is not necessarily the best price they could have gotten elsewhere.

You see, despite what you hear, personal relationships still make a difference.  Better Cost Control works with all the suppliers to manage the bid process.  We then talk to them and make them bid against each other.  We know their profit margins.  We know the people are are bidding.  They know how much business we bring them.  We use our personal relationships and industry knowledge to get the customer the very best price.  Talk to the pricing people at the actual electricity suppliers and you’ll hear the same thing.  Don’t trust the man behind the curtain.  Better Cost Control will do a better job of controlling your energy costs.

 

Natural Gas and Electricity Prices Are Trending Upward

Natural gas prices have very quietly trended up over the past three months pulling power prices along for the ride.  With NYMEX prompt month gas just above $3 as this article was being written, many seem to be putting the value in historical perspective. But relative to recent prices, $3 represents a substantial move.  During this stretch, September natural gas prices have risen over 36% and one year forward, beginning September, have increased over 17%.  For a commodity that has seen its value plummet so dramatically and for such a prolonged period, this 3-month gain represents a stark change and one that should have garnered more attention than it actually has.

Storage has helped fuel this run as many of the recent summer injection levels are down from previous year, week-in-kind volumes.  Despite the lower build, end of injection season levels are still forecaste to be at all-time highs.  Rig counts continue to fall and over the past nine months, they have decreased by nearly 50% -contributing to the smaller storage builds and price increases.  As prices rise and as we near the winter season, the rig decline could reverse course.   The approximate 10% year-over-year contango in the forward market displays the general market consensus that the future will hold higher prices, but a similar or stronger contango has existed over the past several years throughout a majority of the price decline.

Nstar announces new basic service rates for July 1

Massachusetts Nstar customers can breath some relief with lower prices beginning July 1.  Despite these price reductions, customers that decide to obtain fixed price electricity contracts from their energy broker will still save money with a fixed price contract, though not the enormous savings seen in the beginning of 2012.

Commercial & Street Lighting
Fixed Price Option (July – December): 6.686

Monthly Variable Price Option
July: 6.738
August: 6.700
September: 6.173
October: 6.200
November: 6.447
December: 7.796

Industrial (NEMA)
Fixed Price Option (July – September): 5.550

Monthly Variable Price Option
July: 5.695
August: 5.629
September: 5.300

Industrial (SEMA)
Fixed Price Option (July – September): 5.362

Monthly Variable Price Option
July: 5.545
August: 5.461
September: 5.038