EnergyWindow MarketElert ^TM - December 2003
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December Elerts

Connecticut will be moving to Transitional Standard Offer (TSO) Service, procured via a competitively bid RFP process through CT's two electric distribution companies. It will be effective from January 1, 2004, through December 31, 2006. Bids have been solicited and contracts have been awarded by The United Illuminating Company through December 2006 and by The Connecticut Light & Power Company, for which 2004 was fully subscribed while 2005 and 2006 were only partially subscribed. CL&P will undertake an additional RFP process for the remaining TSO load for 2005 and 2006. According to the 2003 revisions to the Electric Restructuring Law, base rates (for TSO generation, distribution and transmission charges) shall not exceed the Dec. 31, 1996 rates, excluding federally mandated congestion costs and any rate reduction ordered by the Department on September 26, 2002. The new TSO rates, to be determined by the CT DPUC by December 15, 2003, remove the 10% rate reduction provided under the Standard Offer period, which expires at the end of 2003.

New Jersey: The BPU has decided that all accounts greater than 1500 kW peak demand in rate classes currently in the fixed price category will be subject to mandatory hourly pricing (PJM LMP plus a half-cent adder) beginning next June. All other non-residential customers may volunteer to be put on hourly pricing or continue to be on a seasonal fixed price. All accounts greater than 750 kW peak demand, hourly or not, will receive the half-cent adder beginning in June 2004. More on the BGS auctions at www.bgs-auction.com

Electricity Savings - A Moving Target

Estimating future savings possible through a competitive offer on electricity is becoming increasingly difficult in deregulated electric markets, and is forcing many buyers to re-evaluate their energy procurement strategies. Initially, in competitive markets such as Pennsylvania, New Jersey and Ohio, shopping credits for generation were fixed for periods of one to several years.

The intention was to cap or reduce generation costs to protect customers from higher generation prices and to maintain a predictable level of stranded cost recovery for utilities during transition periods. Though some markets had built-in rate changes, they were predictable and gave end-users a benchmark of comparison that could be used to estimate savings opportunities with a high degree of confidence.

But now electric utility or default service pricing is moving toward that of natural gas, where default supply rates move more in concert with wholesale prices set on a monthly or quarterly basis. Frequent (as often as 3 to 6 months in some states) competitive bids for utility default service, frequent fuel cost adjustments and (for an increasing number of consumers) monthly or even hourly pricing based on wholesale spot markets are becoming more common, with the end result being that customers shoulder more of the price risk associated with volatile energy markets, as illustrated above. This makes it more important than ever for companies to adopt a procurement strategy that matches their competitive environment, risk tolerance and business goals.

At the heart of a good procurement strategy is establishing a game plan with benchmarks and a corporate-wide view of the future. Does your company value price certainty over guaranteed savings? Or vice versa? Guaranteed savings off utility rates may be available, but typically only with variable pricing that will move with the volatile wholesale markets. Long-term price certainty may come with a commitment to buy at a price that could be significantly better - or worse - than those available in the future. Once you are clear about and comfortable with your company's priorities, it will make decisions about where, when and what products to buy that much easier.