MICHIGAN CHAMBER OF COMMERCE ENERGY MANAGEMENT Webinar Electricity - Natural Gas April 23, 2014 10:00 A.M. - 11:00 A.M. EDT Presented by John M. Studebaker, Ph.D. www.studebakerenergy.net JStudebaker 4/23/14 www.studebakerenergy.net 1 What are your approximate yearly energy costs? (Electricity, natural gas, etc.) $0-$50,000 $50,000-$500,000 $500,000+ JStudebaker 4/23/14 www.studebakerenergy.net 2 What are the total number of facilities in your organization? 1-5 5-10 Over 10 JStudebaker 4/23/14 www.studebakerenergy.net 3 1
How many persons from your organization are participating in this session? 1-3 3-6 Over 6 JStudebaker 4/23/14 www.studebakerenergy.net 4 WHO IS ULTIMATELY RESPONSIBLE FOR ENERGY COSTS? THE CUSTOMER!!! 100% OF THE TIME! JStudebaker 4/23/14 www.studebakerenergy.net 5 How Electricity & Natural Gas Originate & Flow Electricity Generation of electricity Interstate transmission grid Intrastate Distribution grid Natural Gas Natural gas wells Interstate transportation pipeline Intrastate Transportation Pipeline CUSTOMER USE METER POINT CUSTOMER USE METER POINT JStudebaker 4/23/14 www.studebakerenergy.net 6 2
REGULATION IN GENERAL 1. All utilities (electricity & natural gas) are generally regulated monopolies. 2. A 'regulated monopoly' means that it - Has no regulated competition Has all customers in a protected service territory 3. Utilities are regulated in two areas - Intrastate - within a state Interstate - between states JStudebaker 4/23/14 www.studebakerenergy.net 7 INTRASTATE REGULATION (Within the State) Intrastate regulation for electricity and natural gas utilities includes - 1. For-Profit Utilities (In business to make a profit) 2. Municipal Utilities (Are not allowed to make a profit) 3. Cooperative Utilities (Are not allowed to make a profit) JStudebaker 4/23/14 www.studebakerenergy.net 8 WHERE DO MUNICIPAL & COOPERATIVE UTILTIES GET THE ENERGY THEY SELL? JStudebaker 4/23/14 www.studebakerenergy.net 9 3
In general, they purchase wholesale from for-profit utilities. For-Profit Utility (electricity & natural gas) Retail Customers And users in their service territory Wholesale Customers Municipal & Cooperative Utilities Some Municipal & Cooperative utilities do generate their own energy. JStudebaker 4/23/14 www.studebakerenergy.net 10 FOR-PROFIT UTILITIES 1. Regulated on a statewide basis by a commission or individuals appointed/elected at the state level. 2. Utilities in business for making a profit are generally owned by shareholder investors. 3. For-Profit utility regulation process: a) Public notification of intent to change/revise rates or procedures. b) Adequate notification period, generally several months notice. c) Allow input from interested customer groups (customers include actual energy users of that utility or their representatives). JStudebaker 4/23/14 www.studebakerenergy.net 11 MUNICIPAL UTILITIES 1. Owned/operated by a city or county and generally self-regulated/self-governed. 2. Are generally presided over by a commission, or appointed or elected board members. 3. Municipal utility regulation process: a) Public notification b) Adequate notification period c) Presentation of rate request d) Allow input from interested customer groups JStudebaker 4/23/14 www.studebakerenergy.net 12 4
COOPERATIVE UTILITIES 1. Usually serve rural areas where there may not be a large customer load base and are selfregulated. 2. Power generally is purchased wholesale from a For-Profit utility with the Cooperative utility being owned and operated by the customers it serves. 3. Cooperative utility regulation process: a) Public notification b) Adequate notification c) Presentation of rate request d) Allow input from customers JStudebaker 4/23/14 www.studebakerenergy.net 13 The Interstate Regulation Process (between individual states) 1. The state agencies involved regulate distribution and provide the day-to-day regulatory functions of electricity & natural gas within their particular state. 2. The portion of the transaction outside of a given state s boundary is regulated by federal regulatory agencies. 3. Utilities typically use a combination of interstate (within a state) and intrastate (between states) components, and both state and federal regulation. JStudebaker 4/23/14 www.studebakerenergy.net 14 The Intrastate Regulation Process (within the state) WHO IS RESPONSIBLE? 1. The Federal Energy Regulatory Commission (FERC) is responsible. 2. FERC regulates electricity and natural gas distribution from one state to/for another state across individual state boundaries. 3. FERC is composed of members appointed by the President. 4. FERC can be contacted at: http://www.ferc.fed.us JStudebaker 4/23/14 www.studebakerenergy.net 15 5
FERC Responsibilities 1. Certifies small FERC power production. 2. Certifies cogeneration facilities. 3. Approves/enforces rates & charges for sale & distribution of electricity/natural gas between states. 4. Establishes & enforces oil pipeline rates, charges, and valuations. 5. Hears Dept. of Energy appeals of remedial orders and/or denials of adjustments. JStudebaker 4/23/14 www.studebakerenergy.net 16 Steps To Reducing Electricity Costs JStudebaker 4/23/14 www.studebakerenergy.net 17 Energy (electricity) Data Needed Energy Provider (the utility) OBTAIN Complete Tariff Schedule Individual Rate Schedule Data State Website OBTAIN Experimental Rate Tariffs Off-Tariff Schedule Data JStudebaker 4/23/14 www.studebakerenergy.net 18 6
How to Understand Electricity Utility Billing Information? JStudebaker 4/23/14 www.studebakerenergy.net 19 Know Electricity Areas to Evaluate 1. Rate (tariff designation) 2. Demand (capacity reservation needs) 3. Power Factor (efficiency of electricity usage) 4. Voltage Level (where does the utility deliver the electricity to the customer) 5. Usage (the actual energy that is consumed by a customer on a monthly basis) JStudebaker 4/23/14 www.studebakerenergy.net 20 1. RATE Utility customer usage characteristics Classification including: 1. Applicable rate tariff 2. KW (demand) 3. Power factor 4. Voltage level 5. KWh (usage) JStudebaker 4/23/14 www.studebakerenergy.net 21 7
Sample Electric Utility Monthly Billing - RATE GS-GENERAL SERVICE JStudebaker 4/23/14 www.studebakerenergy.net 22 RATE Components of Sample Electric Utility Monthly Billing Rate Savings Potential Up to 30% What to do? GS - General Service Check for alternative rates for customers with your usage characteristics REMEMBER The Customer is always responsible for the most cost-effective applicable rate! JStudebaker 4/23/14 www.studebakerenergy.net 23 Rate Evaluation Process 1. Look for applicable alternative rates Obtain complete electricity tariff schedule 2. Determine cost reduction potentials: Check demand levels Usage levels Hours & days worked Future facility changes or revisions 3. Evaluate applicable alternative rates for "best fit" JStudebaker 4/23/14 www.studebakerenergy.net 24 8
2. DEMAND The peak amount of electricity/natural gas consumed in a measured interval (15/30 minute or other period). This is called Capacity Reservation Cost It has nothing to do with actual monthly consumption of energy or work accomplished. JStudebaker 4/23/14 www.studebakerenergy.net 25 Sample Electric Utility Monthly Billing Demand (KW) DEMAND CHARGE 250 kw @ $9.5299 = $2,382.47 Total Peak Penalty 83 kw (250 kw - 167 kw) TOTAL KW 167 JStudebaker 4/23/14 www.studebakerenergy.net 26 DEMAND Components of Sample Electric Utility Monthly Billing On this sample billing 250 kw Savings Potential 5% - 20% Measured in kw 1 kw = 1,000 Watts Definition Capacity Reservation Charge JStudebaker 4/23/14 www.studebakerenergy.net 27 9
Electricity Demand - Cost Components Demand - "Is the rate at which electric energy is delivered to or by a system, part of a system, or a piece of equipment expressed in kilowatts (kw), kilovolt-amperes (kva), or other suitable unit at a given instant or average over a designated period of time. The primary source of demand is the customer s power-consuming equipment measured in 15/30 minute intervals. Demand charge can vary from less than $5.00 - $30.00 or more per kilowatt per month. Reduction of demand peaks can result in sizeable savings. Demand reduction does not necessarily mean reducing total demand utilized, but it can mean changing when certain pieces of equipment operate. JStudebaker 4/23/14 www.studebakerenergy.net 28 HOW DOES DEMAND OCCUR? Demand (kva/kw) occurs as a result of multiple electrical consuming items operating during the same 15/30 minute time interval. In the following example, the customer would pay for 991 kva/kw. (assuming no other tariff provisions applied) ITEM kva/kw average over 15/30 minute period 1. Motor 97 2. Motor 63 3. Motor 51 4. Motor 25 5. Motor 20 6. Lighting 114 7. Lighting 97 8. Lighting 90 9. HVAC 170 10. HVAC 92 11. Office 85 12. Miscellaneous 87 TOTAL 991 kva/kw JStudebaker 4/23/14 www.studebakerenergy.net 29 Strip Chart Example of Electricity Peaks JStudebaker 4/23/14 www.studebakerenergy.net 30 10
Steps that can assist in determining and correcting Electricity Peak Demands 1. Determine - Current peak demand and related monthly charges. 2. Contact - Utility and request the installation of a strip chart recorder in the system for at least a one-month period. 3. Analyze - Strip chart to determine if there are repetitive peak patterns: hour-to-hour, day-to-day, week-to-week. 4. Develop - Corrective actions needed to be made to correct peak demands. JStudebaker 4/23/14 www.studebakerenergy.net 31 Demand Evaluation Process 1. Utilize utility strip chart data to determine when/where peaks occur. 2. Analyze strip chart information. 3. Take corrective action based upon utility strip chart data. JStudebaker 4/23/14 www.studebakerenergy.net 32 3. POWER FACTOR 1. Power Factor is the efficiency at which electricity is consumed. (kva/kw) 2. It is the relationship between Demand (kva/kw) and Usage (kwh). 3. The higher the Demand (kw), the higher the overall cost per kwh. 4. The lower the Demand (kw), the lower the overall cost per kwh. 5. Savings potential: 5% - 15% THE CUSTOMER CONTROLS KVA/kW and kwh relationship items. The cost of the electricity they consume. JStudebaker 4/23/14 www.studebakerenergy.net 33 11
Sample Electric Utility Monthly Billing - Power Factor Power Factor 60% (167 kw 278 kva) Actual billing Demand 90% (250 kw 278 kva) DEMAND CHARGE 250 KW @ $9.5299 = $2,382.47 TOTAL KW 167 TOTAL KVA 278 JStudebaker 4/23/14 www.studebakerenergy.net 34 Power Factor Cost for this Example Power Factor sample billing cost: 250 kw Billed (90% x 278 kva) 167 kw Actual 83 kw Penalty (83 kw x $9.5299 per kw = $790.98 penalty) OR 16% OF TOTAL COST JStudebaker 4/23/14 www.studebakerenergy.net 35 Power Factor Calculation Details Utility provided peak kva Customer utilized peak demand in kw 278 kva 167 kw Power factor in this example would be: 60% (167 kw 278 kva = 60%) JStudebaker 4/23/14 www.studebakerenergy.net 36 12
Power Factor Evaluation Process 1. Determine Power Factor cost 2. Consider correction capacitors 3. Calculate cost vs. savings 4. Make decision based upon cost / savings rationale JStudebaker 4/23/14 www.studebakerenergy.net 37 4. VOLTAGE LEVEL 1. Voltage level is determined by the location of the billing meter point in the electrical distribution system from the utility to the customer. 2. Generally the lower the meter point voltage level, the more expensive is the incremental usage (kwh) cost to the customer. 3. Savings potential: 1% - 3% Typical Voltage Levels Secondary - 440 volts or less Primary - over 440 volts JStudebaker 4/23/14 www.studebakerenergy.net 38 Sample Electric Utility Monthly Billing - Voltage Level SECONDARY VOLTAGE 220 VOLTS JStudebaker 4/23/14 www.studebakerenergy.net 39 13
Increasing Voltage Level Evaluation Process Utility s transmission lines Most customer s end use 128,000; 69,000; 4,100 volts 440, 220, 110 volts What to do if a customer is served at Secondary Voltage level and if tariff schedule provides for Primary Voltage discounts? 1. Have utility company calculate annual savings of switching from Secondary to Primary Voltage levels. 2. The most economical method to convert to Primary Voltage - a) Determine savings potential b) Consider transformer lease c) Consider transformer purchase d) Calculate savings opportunity JStudebaker 4/23/14 www.studebakerenergy.net 40 5. ELECTRICITY USAGE (kwh) 1. In an electricity monthly billing, the only item that provides value for the customer is the Usage (kwh) utilized. 2. All other components - Demand, Power Factor, Voltage Level, etc. - while required, do not in themselves provide any actual Usage benefits. 3. Usage is probably one of the most difficult items to reduce but its reduction will provide probably the most ongoing value of any single billing component. 4. Savings potential: 3% - 10% Usage (kwh) = Connected load X hours of use (1) kwh = (1,000) Watts for (1) hour JStudebaker 4/23/14 www.studebakerenergy.net 41 Sample Electric Utility Monthly Billing - Usage (kwh) ENERGY CHARGE 48320 KWH @ $.051263 = $2,477.03 (Including Fuel Cost Adjustment) TOTAL KWH 48320 JStudebaker 4/23/14 www.studebakerenergy.net 42 14
Usage - Sample Billing Analysis $2,477.03 kwh Charge = 50.7% of total electric cost: $4,881.14 Where is the other 49.3% Customer Charge $21.64 Demand Charge $2,382.47 Total $2,404.11 USAGE CHARGE $2,477.03 49.3% 50.7% JStudebaker 4/23/14 www.studebakerenergy.net 43 USAGE EVALUATION PROCESS 1. Analyze facility to determine kwh reduction potential 2. Consider energy-efficient equipment 3. Evaluate - a) Project design criteria b) Heating system efficiencies c) Motor size & efficiency d) Electronic ballasts e) Occupancy sensors JStudebaker 4/23/14 www.studebakerenergy.net 44 Steps To Reducing Natural Gas Costs JStudebaker 4/23/14 www.studebakerenergy.net 45 15
Billing Data Needed 1. Utility name 2. Account number 3. Facility address 4. Billing period 5. Rate 6. Gas units used 7. If transportation a) bank status b) actual usage 8. Actual billings JStudebaker 4/23/14 www.studebakerenergy.net 46 Potential Cost Reduction Items 1. Rate appropriateness 2. Type of service 3. Usage variables JStudebaker 4/23/14 www.studebakerenergy.net 47 Starting Points to Reduce Natural Gas Costs 1. Analyze billing history 2. Evaluate usage patterns 3. Identify large variables JStudebaker 4/23/14 www.studebakerenergy.net 48 16
Natural Gas Categories Firm Service If any natural gas is available other than for a few exceptions, the customer will receive their needs. Natural gas purchased from a local distribution company (LDC) and has highest priority of delivery. Firm service is most expensive. Interruptible Service The customer pays less for this class of natural gas service but may have their supply curtailed. Natural gas is provided to customers who can accommodate service interruption on short notice - generally in peak-load seasons or situations. Interruptible service is less expensive. JStudebaker 4/23/14 www.studebakerenergy.net 49 FIRM Tariff Natural Gas "Firm Tariff Natural Gas" - refers to natural gas normally purchased from the Local Distribution Company (LDC) - gas utility. "Tariff" - refers to a published volume of rate schedules, general terms and conditions under which product or service will be supplies. JStudebaker 4/23/14 www.studebakerenergy.net 50 Facts About Firm & Interruptible Natural Gas FIRM SERVICE is not 100% non-interruptible INTERRUPTIBLE SERVICE may not be 100% interruptible. JStudebaker 4/23/14 www.studebakerenergy.net 51 17
Natural Gas Interruption History 1. How many 2. How long 3. When 4. Where 5. Future JStudebaker 4/23/14 www.studebakerenergy.net 52 Items to Consider - Natural Gas Interruptible Service Combine Firm and Interruptible services Onsite backup JStudebaker 4/23/14 www.studebakerenergy.net 53 Natural Gas Usage Varies by - Hour Day Week Month JStudebaker 4/23/14 www.studebakerenergy.net 54 18
Controlling Natural Gas Costs $ $ $ 1. Monitor actual usage 2. Determine reasons for variations 3. Minimize variations JStudebaker 4/23/14 www.studebakerenergy.net 55 The Utility Commodity Deregulation Process JStudebaker 4/23/14 www.studebakerenergy.net 56 What is "Utility Deregulation"? 1. Utilities involved - Electricity Natural Gas What part of the tariff rate is affected? COMMODITY ONLY (Usage) JStudebaker 4/23/14 www.studebakerenergy.net 57 19
How Deregulation Works 1. Changes the commodity portion of the utility bill to a non-utility provider. 2. Requires the customer to arrange for commodity purchases. DEREGULATION DOES NOT ASSURE The lowest energy cost The most efficient energy use JStudebaker 4/23/14 www.studebakerenergy.net 58 Commodity Information 1. Commodity cost is generally 50-70% of total utility bill. 2. Commodity purchases from non-utility providers will not guarantee reduced utility costs. JStudebaker 4/23/14 www.studebakerenergy.net 59 Non-Utility Supplied Electricity & Natural Gas The Process JStudebaker 4/23/14 www.studebakerenergy.net 60 20
Non-Utility Supplied Electricity & Natural Gas Information With the advent of energy deregulation, the opportunity for customers to purchase directly from a third party with the local utility delivering the energy to their facilities has become a reality. Who Sells This Energy? 1. Brokers 2. Marketers 3. Producers JStudebaker 4/23/14 www.studebakerenergy.net 61 Electricity & Natural Gas Brokers 1. Most market-supplied energy is not sold by producers but by parties known as "Brokers". (aka Marketers) 2. Brokers do not take or assume title to the energy that they market. JStudebaker 4/23/14 www.studebakerenergy.net 62 Electricity & Natural Gas Marketers 1. Marketers differ from Brokers in that they do take title to the energy they sell to the customer. 2. A marketer takes title to the energy but generally does not have or own production resources. JStudebaker 4/23/14 www.studebakerenergy.net 63 21
Electricity & Natural Gas Producers 1. Producers have title to and also own production resources. 2. Producers are the original owners of the energy and are responsible for getting the energy to the electricity transmission grid or the natural gas distribution pipeline. JStudebaker 4/23/14 www.studebakerenergy.net 64 Differences Between Electricity & Natural Gas Suppliers BROKERS Do not have title to or own energy production resources. MARKETERS Have title to but do not own energy production resources. PRODUCERS Have title to and own energy production resources. JStudebaker 4/23/14 www.studebakerenergy.net 65 Deregulation in Michigan??? JStudebaker 4/23/14 www.studebakerenergy.net 66 22
Energy deregulation opportunities available in Michigan Electricity Natural gas JStudebaker 4/23/14 www.studebakerenergy.net 67 Selecting an Energy Supplier 1. Contract language 2. Customer service 3. Price 4. Reliability of energy supply JStudebaker 4/23/14 www.studebakerenergy.net 68 Important Energy Supplier Contract Provisions 1. Assignments 2. Billing details 3. Contract time period 4. Credit requirements 5. Customer load 6. Price 7. Terms & Definitions 8. Type of Service (Firm/Interruptible) JStudebaker 4/23/14 www.studebakerenergy.net 69 23
Status of Electricity & Natural Gas Deregulation in States Surrounding Michigan State Electricity Natural Gas Deregulation Deregulation 1. Illinois Yes Yes 2. Indiana No Yes (being discussed) 3. Ohio Yes Yes 4. Wisconsin No Yes (being discussed) JStudebaker 4/23/14 www.studebakerenergy.net 70 Energy Usage Strategies JStudebaker 4/23/14 www.studebakerenergy.net 71 Energy Usage Reduction Strategies 1. Install energy efficient process changes. 2. Implement Energy Management Systems (EMS). 3. Utilize onsite distributed generation. JStudebaker 4/23/14 www.studebakerenergy.net 72 24
Natural Gas Usage Reduction Strategies 1. Improve burner & exhaust stack efficiencies. 2. Consider heat recovery opportunities. 3. Consider modular boiler applications. 4. Consider onsite backup. JStudebaker 4/23/14 www.studebakerenergy.net 73 A Winning Energy Cost Reduction Strategy 1. Develop an energy cost reduction process. 2. Prioritize savings opportunities. 3. Be persistent. Be persistent. Be persistent. 4. Allow time for results. JStudebaker 4/23/14 www.studebakerenergy.net 74 The Customer MUST BE INVOLVED! DOING NOTHING Will Increase Energy Costs & Risks! DOING NOTHING Always Costs Something! $ $ $ $ JStudebaker 4/23/14 www.studebakerenergy.net 75 25
Energy Customer Involvement Means - 1. Knowing energy expenses 2. Knowing energy usage characteristics 3. Knowing how to analyze energy costs JStudebaker 4/23/14 www.studebakerenergy.net 76 What is the Future For Energy Costs? JStudebaker 4/23/14 www.studebakerenergy.net 77 What is the Future of Energy Costs? 1. Higher costs overall. 2. More rate categories. 3. More frequent rate changes. 4. More interruptible energy. 5. Less firm energy. 6. More user involvement in energy cost pricing and usage factors. JStudebaker 4/23/14 www.studebakerenergy.net 78 26
Energy Availability Now and in the Future JStudebaker 4/23/14 www.studebakerenergy.net 79 IS ENERGY AVAILABILE NOW? YES! For All Customer Classes Residential Commercial Industrial Customers JStudebaker 4/23/14 www.studebakerenergy.net 80 WILL ENERGY BE AVAILABILE IN 2-5 YEARS? YES - generally At Increased Cost for all Customer Classes Residential Commercial Industrial Customers JStudebaker 4/23/14 www.studebakerenergy.net 81 27
WILL ENERGY BE AVAILABILE IN 5 YEARS +? YES - probably For All Customer Classes - BUT Firm - generally only residential customers Non-Firm - commercial & industrial customers JStudebaker 4/23/14 www.studebakerenergy.net 82 Think about these questions: 1. How does alternative energy impact what has been discussed? 2. What is the standard unit of measurement for all forms of energy? 3. Do you think there will be more or less utility deregulation in the future? JStudebaker 4/23/14 www.studebakerenergy.net 83 Thank you for your attendance! The value of this session is in what you do - not in what the instructor said!!! JStudebaker 4/23/14 www.studebakerenergy.net 84 28