Demystifying Your Utility Bill

Transcription

1 New York City Chapter Hospitality Financial and Technology Professionals DEIRDRE LORD PH: (917) Demystifying Your Utility Bill HFTP NYC CHAPTER MONTHLY MEETING JUNE 20, 2012

2 Learning Objectives Electricity overview. Understand the relationships between players in energy markets. Understand your electricity bill thoroughly. Utility delivery bill. Utility supply. ESCO-delivered supply. Identify opportunities for cost reductions, cost avoidance, and energy efficiency and green purchasing. Sample budget forecast, and what causes variances.

3 Electricity market overview generation/supply transmission (by the ISO) distribution consumption (by local utilities) Generators of power The Grid Suppliers (ESCOs) 3

4 Electricity market overview If The Grid Is A Bath Tub & Electricity Is Water Generators add the water (electricity) 2. ISO (Independent System Operator) controls the water level by adjusting what goes in, in anticipation of what goes out Suppliers buy water from generators and sell it to consumers 3. Utilities maintain the pipes and the tub (The Grid) 4. Consumers drain the water via many drains (and since it is electricity, it can t be stored so there s no plug for the drain) 4

5 Cost of Supply vs. Cost of T&D Recent Shift

6 Utility bill explained: Con Edison invoice transmission/ distribution supply taxes

7 *Definitions: kw and kwh kw (aka demand) kwh (aka energy) Measure of peak kw usage in a given time period (day, month, year). Cumulative measure of usage, measured in the way that an odometer tracks miles traveled.

8 Utility bill explained: Con Edison delivery Energy delivery kwh Demand delivery kw SBC/RPS charges Funds programs (efficiency, renewable portfolio standard) Meter charges meter reading Billing/payment processing NY State Surcharge GRT/Taxes

9 Con Edison Delivery: Cost drivers Regulated costs determined by Con Edison and the NY PSC. kw demand Time of use demand charge; charges vary seasonally. Summer charges can have a significant impact on total cost. kwh energy charges Billed in cents per kwh and again simply covers the utility s cost to provide customers with delivery service. Systems Benefit Charge/Renewable Portfolio Standard Charge (SBC/RPS) Billed cents per kwh. Varies monthly. Meter charges Con Edison s charge for reading your meter; higher cost for larger, time-of-use customers (Rider M). Billing/payment processing Charge for conducting billing services for customers who DO NOT choose an ESCO/Alt supplier

10 Con Edison Delivery: Minimizing cost drivers Cost driver kw demand kwh energy charges Systems Benefit Charge/Renewable Portfolio Standard Charge (SBC/RPS) Meter charges Billing/payment processing Efficiency measures Peak shaving Demand response Curtailment kwh reductions from efficiency measures HVAC Lighting- public areas, guest rooms Occupancy sensors Use NYSERDA where you can You re paying for it already Competitive metering? ESCO service to avoid billing fees?

11 Utility bill explained: Con Edison supply Energy supply kwh Day ahead energy price (market-based) Demand (supply) kw Capacity (market-based) Merchant function charge Regulated/negotiated charge GRT/taxes

12 Con Edison Supply: Cost drivers Supply rate market-based. kwh energy charges Day-ahead market price. Capacity Determined by your peak usage (in the summer). Billed based on ISO capacity market. Merchant function charge Supply-related charge Credit and collection charge Uncollectible-bill expense Market Supply Charge Transition Adjustment

13 Components of An Electricity Cost What all this means to you, and your bill. Fees Margin & Risk Premiums Capacity Ancillaries Transmission Energy/Power Energy/Power Paid to supplier who buys the energy from generators or the hourly spot electricity market. Generators sell forward strips while suppliers buy hourly/index electricity from the ISO. Transmission Paid to utility and the ISO to maintain the distribution system to your business. Ancillaries Charges Generators are paid to stand-by to use their facility for quick response reserves. Capacity Charges Generators are paid to stay operable so that on the peak hour of the peak day of the year, enough capacity will be available. Supplier Costs and Risk Premiums The supplier charges a fee for their service Credit costs, plus operating fees and premiums paid to fix prices (and assume risk) on part or all of these costs. Fees A broker or consultant charges a fee for their service. 13

14 The Finances of Electricity Electricity is traded like any other commodity bought forward in monthly blocks called strips not possible to store very price-volatile An Electricity Cost is made up of: Energy Capacity Ancillaries Transmission Supplier Cost plus Credit and Risk Premiums Distribution by local utility /24/2004 6/24/2004 7/24/2004 8/24/2004 9/24/ /24/ /24/ /24/2004 1/24/2005 2/24/2005 3/24/2005 4/24/2005 5/24/2005 6/24/2005 7/24/2005 G S C I C rude Volatilities 8/24/2005 9/24/ /24/ /24/ /24/2005 1/24/2006 2/24/2006 B onds NY C E lec tric ity 3/24/2006 4/24/2006 5/24/2006 6/24/2006 7/24/2006 8/24/2006 9/24/ /24/ /24/ /24/2006 1/24/2007 2/24/2007 3/24/2007 4/24/

15 Today s market prices Wholesale prices largely driven by natural gas prices. Electricity and gas are at historic lows. Expect more increases in price than decreases.

16 Supply: Minimizing cost and/or risk Cost driver kwh energy charges kw capacity Ancillaries Risk premiums Fees Cost saving measures Efficiency measures Market tracking 10-18% savings Curtailment/demand response 5-10% savings Understand your own risk profile, and the trade-offs between different options Don t pay un-necessary fees; be savvy about purchasing. 1-7% savings

17 Impact of when you decide

18 Causes of cost variances Volume changes Market price changes Regulatory events

19 Business metrics What is your primary metric for success when managing your energy budget? Savings? Risk containment? Avoided cost? How do you manage your costs? Best practices Success stories

20 Summary Cost containment/management Effective measurement kwh (energy) reductions kw (demand) reductions Smart purchasing strategies Causes of variances Volume Cost General recommendations Negotiate You are always in the market buy when it makes sense You can manage energy costs

21 Resources and Glossary

22 Resources General Energy efficiency guide for hospitality industry otels EPA Energy Star Guide: Hospitality bus_hospitality_entertainment

23 Glossary What is Wholesale Power? Wholesale power is generally traded between entities that will not ultimately deliver electricity to the end-user. These players may be generators of power, commodity trading shops, investment banks, independent power producers or large energy holding companies. Participants in the wholesale power market are regulated by the Federal Energy Regulatory Commission and usually by a regional authority (an Independent System Operator or a Regional Transmission Authority). The RTO or ISO administers the wholesale power markets and manages the flow of power over the transmission grid to insure reliable power at the lowest cost. There are three components of the cost of wholesale power, energy, capacity and ancillary services. How does The Megawatt Hour arrive at today s market projection? Like any commodity, electricity is bought and sold in the forward market by banks and commodity houses. The Megawatt Hour receives daily information and updates from a number of wholesale energy market information services and uses our own algorithm and supply expertise to provide you with a view of the forward market. The forward price that you see on the dashboard is very close to the price that any wholesale provider would see or that any retail provider would use to calculate your retail price (see Pricing detail for more information).

24 Glossary continued How do energy markets function? There are a number of components to a retail electricity price (see Components of your electricity price) energy, capacity, ancillaries, transmission, delivery and retail margin. Energy and capacity are traded in the wholesale market. There are various ways of arriving at a price, but generally there are rules that govern how buyers and sellers can participate in the market, and these components are bought and sold in day-ahead (literally buying today for delivery tomorrow), real-time (buying right now for delivery in the next hour) and forward (buying now for the next 1 to 36 months ). Ancillaries, transmission and delivery tend to be controlled by regulators and the ISO, resulting in fairly uniform rates that all market participants must pay. What is deregulation? By deregulating the electricity industry, policymakers and regulators created competitive markets for the supply of electricity to customers. The graphic shows the billing components for which electricity suppliers can compete in deregulated markets (the top four components of the bar). Prior to deregulation, vertically-integrated utilities provided all components to rate payers, including electricity supply, transmission, and distribution. In a competitive environment, utilities have unbundled the nondelivery portion of their service, primarily the energy, and those services are now open to the competitive marketplace. The retail electricity industry has existed since electricity deregulation began in Primarily because there is no overriding federal legislation dictating retail competition, state policymakers have undertaken deregulation of the electricity industry differently in each state. There are different market structures, operating rules and requirements in most states. This approach has added complexity to your energy purchasing decision; particularly for those of you whose operations span many different markets.

25 Glossary continued Components of Costs -- Energy The power that runs the motors, lights the lights, and turns the meters is the largest component of your electricity cost. The wholesale cost of energy in deregulated markets is the known as the Locational Marginal Price (LMP), which is a market-based value that includes power generation costs and the costs of transportation and losses to a specific location. That location is your load zone. The LMP is defined each hour by an auction process administered by the ISO. The LMP prices are publicly available. Components of Costs Capacity Since electric energy cannot be easily stored, the ISO administers a market for installed generation capacity to insure that, over the long run, adequate generation resources are available to supply load. Each electric account is assigned a capacity obligation and each retail electricity supplier must purchase installed capacity to meet that obligation. The market price is set by annual and/or monthly auction processes that differ among the ISOs. This cost will be the second largest component of your electricity cost. (There is no installed capacity obligation or cost in ERCOT.) Components of Costs Ancillaries Ancillaries (or ancillary services) are required to support secure and efficient operation of the wholesale power system. Short-term (10 to 30 minute) reserve power and regulation (real-time frequency) support are procured by the ISO through market auction processes. Ancillary charges also include smaller charges for other operational costs, fees to pay for the ISO and uplift charges whenever exigencies require operation outside of normal, efficient dispatch. The ISO procures these services directly from generators and independent power producers and then passes the costs through to all retail suppliers of electricity, and, ultimately, to purchasers of electricity. These costs can be quite volatile but are usually less than the cost of installed capacity.

26 Glossary continued Components of Costs Risk Premiums Wherever a retail contract specifies a fixed charge for the term of the contract, the supplier will seek to hedge the price risk by making purchases in the wholesale forward market. Some components of cost cannot be readily procured in any forward market. For example, ancillary services cannot, usually, be hedged by a forward purchase. Wherever the retail contract price is fixed, but the retail supplier cannot purchase the component in a forward market, there is a price risk to the retail supplier. Suppliers will include these risk premiums in your price. These premiums will be built in to the fixed component of your price in to your fixed price if that is the product you choose, or in to the fixed adder component of your index with adder. Components of Costs Losses The electric distribution system requires retail suppliers to purchase a bit more power in the wholesale market than the power measured at your meter. These losses are fairly small (2% to 10%) but can be quite volatile since they are dependent on hour-to-hour load and temperature. The retail supplier must estimate and incorporate the distribution loss factor in to their cost calculations. Components of Costs Margins The retail supplier must forecast retail loads, schedule wholesale purchases with the ISO every hour, purchase forward supply where appropriate, financially settle with the ISO, and, importantly, post credit for all transactions. The retail supplier, usually, must produce bills for, and collect from, retail customers; collections may be delayed or at risk. The cost for people, systems, and credit to do all these things, in addition to the additional margin needed to run a profitable business, is included in the retail margin. Retail margins are typically from $0.002 to $0.004 per kwh, depending on the size and complexity of your products and requirements.