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