Scott Helm’s customers sometimes get negative prices

He runs AmericanPowerNet from Wyomissing, Pa, a firm that links large buyers with large sellers — at retail and at wholesale. We reported how the wholesale approach works (RT, 2/18). One customer, he explained, got just two offers from retailers but at wholesale won 28 offers from eight wholesalers. We tried to zero in on the difference between retail and wholesale suppliers. A retail firm sells power to consumers who use the power themselves.

A wholesale marketer is one that may sell in PJM, NEPOOL or MISO markets to those who don’t use the power themselves. But large retail buyers can buy at wholesale even for their own use and typically can save 5-10% over retail deals and find lots more suppliers, Helm said, if they have at least a 10-mw load and good credit. Wholesale is a “whole vibrant market most customers don’t see,” he noted, because most retail customers don’t test the wholesale waters.

The first consumer he guided to wholesale markets was a large paperfirm in Luke, Md, along the West Virginia border in the Allegheny Power footprint. At first scheduling and balancing were provided by a retailer but Helm’s firm now does that for further fun and profit. Retailers would typically charge 2-5 mills/kwh as the retail license holder. But isn’t settling and balancing risky? “The way PJM is set up there’s not penalties for over- and under-scheduling or over- and under-buying. It’s simply settling at the hourly spot price.”

AmericanPowerNet believes it’s the first firm to switch a customer from zonal to nodal pricing (BOC Gases). The nodal price he found was significantly lower but that’s not always the case. It’s hit or miss. “If you see the zonal price as the average of all the nodal prices in that zone, roughly 50% are going to be lower and 50% higher. “We’ve taken two of the first three to switch to nodal from zonal,” Helm added.

Occidental Chemical was the one that got the law changed for a plant in Delaware via filing with FERC and winning the right to switch. The third plant to go nodal is the Mead Westvaco Luke plant aided by AmericanPowerNet getting a 15% savings for the consumer, he added. Is this now a trend? Each case has to be weighed on its merits, he replied, depending on where the property is located vis-a-vis congestion. One plant sold by Mead Westvaco to NewPage at Dayton, Ohio, the new name for Cerberus Capital Management, generates negative pricing and when that happens the firm actually gets paid to take power.

We had reported that phenomenon for NEPOOL buyers when the ISO changed pricing to negative to encourage generators to cut back on output. “That must come as a big thrill for your customer?” we asked. “They quickly learn to shut down their own generation and take more power when the prices go negative,” he responded. “And that helps the system too,” Helm added. Helm works with companies in ERCOT, New York, NEPOOL and now MISO.

Reproduced from the July 8, 2005 issue of Restructuring Today with the permission of the publisher, GHI LLC
(+1-202-351-6880, www.restructuringtoday.com).