BuildingsOne March 5, 2017 Electricity deregulation affords commercial real estate owners with options regarding the supplier of this energy commodity. Deregulation provides an open competitive marketplace from which multiple energy companies can compete for the energy business of commercial real estate owners. This arrangement promotes a variety of pricing plans and options that would not otherwise be available to the real estate consumer. 3 rd party electricity suppliers cover the cost of the electricity generation & transmission over the United States electricity power grid - the national grid. This grid carries the electricity (transmission) and is the same grid whether the electricity is provided by the regional (local) electricity supplier or a 3 rd party electricity supplier on a competitive bid basis. The distribution of electricity, over the regional electrical wires, remains regulated under the regional electricity provider. STATES OFFERING DEREGULATED ELECTRICITY Connecticut Massachusetts New Jersey Pennsylvania Illinois Michigan New York Rhode Island Maine Montana Ohio Texas Maryland New Hampshire Oregon Washington, DC
There are three basic phases in getting electricity to hundreds of thousands of buildings in the U.S. commercial real estate market: Generation - The production of electricity from a power plant. 3 rd party electricity providers cover the cost of the electricity generation and the cost of transmission over the electricity power grid. Transmission - The movement of electricity from the generating power plant to the regional-local utility sub-stations. 3 rd party electricity providers cover the cost of the electricity transmission over the electricity power grid. Distribution Delivery - Electricity provided from any power plant to the commercial real estate market travels along fixed electrical wires and associated infrastructure - the electricity grid. Delivery charges pay for the construction and maintenance associated with this electrical grid system. 2
The electricity buying process, including understanding a myriad of technical terms, can be intimidating even for the experienced commercial real estate manager. Retaining an independent energy consultant-broker can be instrumental to the process of advising the real estate manager through a range of cost competitive choices from experienced and financially-secure electricity source providers. ELECTRICITY COMMODITY SUPPLY PURCHASE BID & SELECTION PROCESS OVERVIEW 3
Electricity Purchasing Factors ranging from length of term, fixed vs. variable price, add-on costs, fixed or pass-through options, and the electricity suppliers financial strength are just some of the considerations requiring consultant and owner-operator review prior to final selection of an electricity supplier. 4
The table on the previous page provides just a few examples of various pricing options available to the c omme rc ial re al e state owner, dependent upon the specific electricity market, electricity supplier, and property owner s goals and objectives. There are a numerous pricing options available to the commercial real estate owner for purchasing electricity in an open deregulated energy market. Two broad pricing options include Fixed Pricing and Variable Pricing. There are various forms of fixed pricing and variable pricing and numerous alternatives and variations within distinct components of these two options. Purchasing electricity on an Index Basis is also an option some property owners may want to consider. Having a fundamental understanding of the overall deregulated electricity market and local electricity utility provider s rate structure and billing process is key to making an informed procurement decision in the best interests of the property owner and tenants. Available in BuildingsOne library of documents Energy & Utilities - Concepts & Applications offers additional insight into navigating the electricity deregulation process. 5