Paenergypresentation11 17final 091118100127 Phpapp02

PA's Electricity Deregulation: How to Save Money with Electric Choice

Presenter: Richard J. Costello, PE, MSEM, BSME, CEMPresident, Acela Energy Group

Live Webinar Sponsored by CrunchEnergy, November 17, 2009

Presents PA's Electricity Deregulation: How to Save Money with Electric Choice

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Sponsor: CrunchEnergy


Presenter: Richard Costello• President of Acela Energy Group• Former Power Supply Manager for the Massachusetts

Bay Transportation Authority • Senior Engineer in the Load Management

Department of Boston Edison• Past National President of the Association of Energy Engineers (2000)• 2003 Energy Professional of the Year Award • 2006 Inductee, Energy Managers Hall of Fame• M.S. in Engineering Management from Western New England College; B.S. in

Mechanical Engineering from Northeastern University • Certifications:

Certified Energy Manager - Association of Energy Engineers (Instructor) Certified Lighting Efficiency Professional - Association of Energy Engineers Certified Demand Side Management Professional - Association of Energy Engineers Certified Energy Procurement Professional - Association of Energy Engineers

(Instructor) Certified Green Building Engineer – Association of Energy Engineers Certified Business Energy Professional - - Association of Energy Engineers

( Instructor) Qualified Energy Analyst – Association of Energy Engineers


Agenda

• The Electrical System• Pennsylvania Rules• Energy Procurement Process• Marketers & Brokers• Conclusion• Questions


Electric Power System: An Overview

Source: Duquesne Light


The Regional Grid: PJM

The Pennsylvania-Jersey-Maryland Independent System Operator (PJM)is the Regional Transmission Organization (RTO) that operates the regionaltransmission system and runs the associated energy markets


Average Retail Prices

8 of the 10 states with the highest (cents/kWh) average retail electric rates are located in the Northeast, with Connecticut ranking highest as of Sept. 2008.


Northeast Commercial Power Marketers


Electric Choice

• Gives customers access to alternative electric generation suppliers (EGSs)

• Utilities referred to as Electric Distribution, or “EDCs”• Utility bills unbundled into generation, transmission and

distribution• Distribution charges billed to customers by utility regardless

of supplier• Supplier remitted charges for generation and transmission

charges (Price to Compare)• Distribution and transmission continue to be regulated

charges (FERC and PUC)

Source: GDF Suez


Electric Choice

Source: Duquesne Light


PPL’s Competitive Bridge Plan, 2010

• Large C&I Customers• Small/Mid-sized

Customers• Large Customers • Small Customers


PPL’s Default Service Plan

• Large Customers (Rate Schedules GS-3 >500kW & LP-4 with >=500kW, LP-5, ISP, LP-6, LPEP, IST, ISM & Standby Service) will be on Real Time hourly PJM Locational Margin Price (LMP)

Real Time Hourly LMPs plus admin costs, transmission, ancillaries and capacity

Proposal is pending to create a Monthly Fixed Price product, bid on a quarterly basis (price may vary each month, but prices will be set based on a quarterly procurement)Additional details to follow

• Small customers (Rate Schedules GS-1, GS-3 <=500kW & LP-4 >500kW, GH-1, GH-2, IS-1, BL, SA, SM, SHS, SE, TS, SI-1, and standby service) will have a Fixed Price

Fixed pricing set via 8 procurements Set by blending procurements of spot market, 12-month, and 24-month

supply contracts starting in 2009


PPL’s Small / Mid-sized Customers – RSP & RMP

• Two options:• Rate Stabilization Plan (RSP)* - Covers 1/1/2010 – 12/31/2011• Rate Mitigation Plan (RMP) – Covers 1/1/2010 – 12/31/2011


2009 Timeline for PPL’s Power Purchase Option (1- year 2010 opt-in Plan for Large Industrial Users

• July 27, 2009 – Deadline for customers to express interest in the

one-year fixed-price option

• August 24, 2009 – Request for proposals issued to suppliers

• October 5, 2009 – Supplier bids due

• October 8, 2009 – PA PUC approves results

• October 8-9, 2009 – PPL Electric Utilities announces results,

provides pricing information to customers

• November 9, 2009 – Deadline for large customers to accept one-

year, fixed-price option

• Source: PPL Electric Utilities www.pplelectric.com/Commercial+and+Industrial/rate+options/Power+Purchase+Options.htm


Electricity Cost Components

• Energy Output of generator + losses & congestion Majority of total energy cost Volatile yet liquid Determined by market forces

• Delivery Cost of moving energy from generator to meter Smaller portion of total energy cost Low volatility; tariff-based Determined predominantly by regulatory bodies

and ISOs


Electricity Cost Components - PJM

Source: GDF Suez


PJM – Capacity, Transmission, Ancillaries

PY 07/06

PY 08/09

PY 09/10

PY 10/11

PY 11/12

PY 12/13

S/MW-Day

40.69 113.22 188.55 174.29 110.04 133.46

Est. $/kWh

$0.0031 $0.0086 $0.0143 $0.0132 $0.0083 $0.0101

• Capacity cost – PLC demand * Reliability Pricing Model (RPM)

• PLC is each customer’s Peak Load Contribution

• You have some control over your PLC

• PPL RPM costs:


• Capacity• Transmission• Ancillaries• Line Losses (Distribution &

Transmission)

• Taxes (Gross Receipts)

Product Structures

Energy Structure• Fixed• Index + Adder

– Real-Time– Day-Ahead– Fixed Blocks– Heat Rate

• Volumes: full swing v. bands

Include or Pass-through Adders

Any or all of the adders can be combined into or excluded from the energy pricing structure. Know what you’re buying!

PA's Electricity Deregulation: How to Save Money with Electric Choice Sponsored by

Energy Procurement Process


Who decides the path taken?

• The Facility Manager• The Energy Manager• The Purchasing Department• The VP of Operations• The CEO• The Accounts Payable Clerk


Time and Resource Allocation Issues

• Time to carry out the procurement process

• Sufficient knowledge to comfortably carry out the process

• Internal support of other departments within the institution

• Funding available to acquire outside assistance if desired


Competitive Process

• Create an Energy Team Facilities Accounting Legal Purchasing Experienced consultant, if desired


Assembling the Necessary Information

• Non-Energy Related Information Facilities physical information (maps, plant

descriptions, etc....) Financial information (annual report-type info) Corporate general information (public relations-

type material) Gathered energy information and bills (very

time consuming)


Assembling the Necessary Information

• Energy Related Data 1 or 2 years worth of electric bills Information from electrical time-of-day meters

• 15 minute data• Hourly data• Load profiles

Any other data available from the LDC Some utilities charge for interval data, some do not


Determining Load Profile


• How many power marketers will you solicit?

• Are they licensed in the state?• National, regional, and/or local financial

capabilities• ESP’s relationship to Local Distribution

Company (LDC) & others

Which Energy Service Providers Do I Solicit?


• Introduction• General conditions (typical)• Questions relative to Power Marketers (financial,

existing clients, etc...)• Detailed questions on energy services• Pricing - methods to present pricing• Legal language - general corporate purchasing

language along with specific power purchase agreement language desired

• Energy Data - Properly presented in hard copy or preferably electronically

Writing the Request for Proposal


Issuing the Request for Proposal

• Receive faxed or emailed confidentiality statements

• Mail/email all request for proposals at the same time

• Verification of receipt• Written questions received and answers

distributed• Most power procurements are done via

email


Reviewing the Proposals

• Non Economic ESP retail experience ESP financial position Strength in answering

the RFP, references

• Economic Terms and Conditions

of contract


Major Areas of Concern in Electric Purchasing Contract

• Electric usage upper & lower limits - Bandwidth• Early termination and results, +/-• What are you actually buying? - Defined• Force Majeure• What does the term “Firm, All Requirements” mean?• Selling or buying a facility• What does “Reciprocal” mean? – Indemnification,

liquidations• Exact term of the contract• Evergreen clauses• Credit requirements

Lenovo User

What does this mean? Please explain. Thanks!


The Power Purchase Agreement

Negotiate a contract with advantageous terms and conditions tailored to your particular load profile.

The proper terms & conditions are extremely important, oftentimes more important than price differences.

Once you are comfortable with several contracts, then begin to ask for prices.

Also keep in mind: The quicker you can make a decision, the less risk premium will be built in by the Power Marketer.


Selecting the Energy Service Provider

• Notify the primary contender(s)• Notify the non-contenders• Provide appropriate feedback to all• You may end up soliciting these Power

Marketers again


Power Marketers and Power Brokers

• A Power Marketer generally has title to the power and is financially responsible to the customer for billing at the agreed-upon rate and contract terms and conditions

• A Power Broker generally assists the customer on selecting the optimal Power Marketer with whom the customer should sign a Power Purchase Agreement

Lenovo User

PA Stats instead of CT?


Caution When Using an Energy Broker

However:• Many Brokers receive payments from

the Power or Gas Marketer that they select for you, and they receive payments based on the number of kWh’s or Therm’s your company uses, not how much time they actually spent on the procurement process.

• With this payment process set up, it is easy to see why many Brokers will suggest you sign on for the longest term, for they receive money for the entire length of the contract.

There are Energy Brokers that provide excellent services at fair prices.

Lenovo User

Two slides


Caution When Using an Energy Broker

This type of payment method can lead to disastrous results such as:• Paying 10 to 50 times too much for the

Energy Procurement Process!• Oftentimes, the Energy Broker is

making more money than the Energy Marketer

• Being told to sign long-term deals, when your company should absolutely not be signing a long-term deal

• Brokers recommending the Marketer who gives them the most money, even though the energy purchasing contract may be terrible


If You Choose to Work with an Energy Broker…

• Ask to see a copy of the complete and up-to-date Broker/Marketer Contract, for each and ever Power Marketer that the Broker is dealing with. If they don’t provided these contracts to you to review, do not use that broker, for they obviously don’t want you to see it.

• And don’t let them tell you it is confidential, for that simply means they are terrified to let you see how much they are making!

• Once you do get copies of these Broker/Vendor agreements, check for the total compensation the Broker is going to receive from the Marketer.

• Also be aware of Brokers who sell through other Brokers who have agreements with Marketers, i.e., two middlemen! If this is the case, you need to see both contracts, Broker to Broker, and Broker to Marketer, to determine just how much you are paying for the energy procurement services.


If you do choose a broker…

You must insure the following in the contract you sign with the Broker:

You must get an electronic copy of the complete RFP sent to the Marketers.

You must get the name and contact information as to what Marketers were given an RFP for your company.

You must receive a copy of any and all documentation received from the Marketers to your broker, including response, energy purchasing agreements before and after negotiated by the Broker, and of course, pricing given.


Typical Pricing Example for a Supermarket


Review of Energy Procurement Process

• Develop and facilitate client energy teams

• Select qualifying energy service providers

• Obtain the proper utility usage and demand data

• Issue Request for Proposals to Energy Service Providers

• Evaluate proposals –economical and non-economical

• Negotiate Energy Purchase Agreements

• Check LDC rules• Monitor energy service

providers• Review contract adherence• Evaluate Prices; Fixed,

variable or NYMEX based, ie timing

• Analyze risk• Attention to LDC


Things to Remember

• Always investigate all your energy usage alternatives.

• Begin gathering your energy information now.

• Start or complete selection of Energy Team Members.

• Don’t forget about existing and future opportunities with the various LDCs.

• Windows of Opportunities


Things to Remember

• The competitive process has a successful history of generally providing the best results.

• Treat the energy procurement process in a similar manner to other types of purchasing processes, yet understand the differences and risks associated with energy pricing.

• Concentrate on the procurement process, and keep a good record of the process and the results.


CrunchEnergy: A few words

• CrunchEnergy provides Power Broker (procurement) services – but we’re good guys!

• We also provide energy audits• That’s just the beginning –

we’ll work with you to find other ways your company could be saving on energy Low-hanging fruit Longer-term strategies

Thank you.Richard E. Costello, Acela Energy: [email protected]

Scott Goldthwaite: [email protected] -973.233.4862Rosanne Kinder, Bluebird University: [email protected] – 908.500.4732

mailto:[email protected]



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Paenergypresentation11 17final 091118100127 Phpapp02