PECO Price to Compare to Rise Nearly 40% on June 1 to 9.38¢ per kWh

The PECO Price to Compare for C&I customers in the General Service (GS) 100-500 kW rate class will increase nearly 40% on June 1.

Starting June 1, 2013, the General Service (GS) 100-500 kW rate class Price to Compare will increase to 9.38 cents per kWh, from 6.81 cents per kWh.

The General Service (GS) <100 kW rate class Price to Compare will decrease slightly to 9.24 cents per kWh, from 10.73 cents per kWh.

The Primary Distribution (PD) 100-500 kW rate class Price to Compare will increase to 8.42 cents per kWh, from 5.88 cents per kWh.

The Primary Distribution (PD) <100 kW rate class Price to Compare will decrease slightly to 8.27 cents per kWh, from 9.74 cents per kWh.

Click here to see the details on the PECO web site.

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

Making Sense of the Present Electricity Market

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  • 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.