You may be shocked by monthly electricity pricing.
Beware of monthly electricity pricing. If your company has entered the newly deregulated electric market and
is currently buying electric based on a price that can change from month to month,
we recommend that you obtain a fixed price prior to the summer months. Here's
why.
Electricity is the most volatile commodity in the world, primarily because it
can't be stored. This affects the cost of electricity dramatically. For example,
the pure cost of power (without capacity, transmission, ancillary services, gross
receipts tax or line loss charges) during a typical on-peak period September
through June may average about $35 per megawatt hour, or 3.5 cents per kilowatt
hour. For the months of July and August, the average cost of that same on-peak
electricity jumps to over $100 per megawatt hour, or 10 cents per kilowatt hour
- well over a 50% increase at a time when you are probably using twice as much!
The wholesale cost of electricity is very seasonal, with summer generally being
the most expensive time to buy and use power across the country. This is also
the reason that monthly prices look very attractive during non summer months.
If you are considering a proposal for your company that specifies monthly electricity
pricing, you need to be aware that you are taking a spot price that can change
significantly from month to month. This can be a very risky proposition, given
the volatility of electricity prices. You should only consider monthly pricing
if your company's electricity use is significantly lower during the summer, or
if your facility has the ability to curtail or displace load with on-site generation.
Otherwise, the price risk is probably not worth taking as compared to a fixed
price contract.
Most electricity marketers are able to provide a variety of pricing options.
The prudent customer will insist on a fixed price per kilowatt hour or a fixed
price for demand plus on-peak and off-peak kilowatt hours. The best option for
your company ultimately depends on a number of factors such as projected electricity
consumption, load profile, and risk tolerance. Despite the risk and complexity
involved, you should be an active participant in the energy procurement process
since your company stands to benefit substantially. Participation guidelines
vary depending on the region of the country where your company operates.
Some states have already enacted electricity deregulation legislation that
allows all types of consumers - commercial and industrial as well as residential
- an opportunity to sign up to purchase power from an alternative supplier at
any time. Other states allow only the largest users of electricity the option
of choosing their suppliers, while still others specify whether a customer can
shop for all, or just a portion of their energy needs. Finally, some states are
only beginning to talk about deregulation of energy.
To determine the level of deregulation in your state, check with your Department
of Energy, or search the Internet for sites on energy or deregulation. American
PowerNet maintains links to this type of information on their web site at www.americanpowernet.com.
Deregulation creates competition which in turn gives end users an opportunity
to realize significant savings on their electricity costs as well as benefit
from new, energy related services. Making the right decision for your company,
however, can be a challenge considering the complexity of the issues and the
large volume of confusing and conflicting information that has been communicated
over the last year. To fully benefit from this new free market environment, the
prudent customer will take the time to fully evaluate and understand the issues
of energy procurement.
-Article provided by R. Scott Helm, president of American PowerNet. American
PowerNet provides clients with supply-side management services designed to provide
direct cost savings on energy purchased, and demand-side management strategies
that reduce or shift energy use for overall lower energy bills. As a leader in
the electricity and natural gas procurement markets, American PowerNet currently
procures energy for thousands of accounts nationwide. For more information, call
(610) 372-8500 or visit online, www.americanpowernet.com.