Electricity

Understanding The Electric Market

 

            The single most common factor we find among electric customers is confusion. Faced with a marketplace that continues to change coupled with an influx of suppliers, many of which offer different options and recommendations, it would be surprising if consumers were not confused. The good news is that once you understand a few basic concepts the market and your choices are not so confusing. The issues you need to understand are:

 

  • Understanding supplier offers.

  • When you should lock rates.

  • How long you should lock rates for.

  • What to look for in supplier agreements.

 

Understanding Supplier Offers

            

            When you select a supplier other than ComEd, they are responsible for billing you for all costs billed in ComEd’s Electricity Supply Services section. The exception is the Purchased Electricity Adjustment, which customers who select a supplier other than ComEd do not pay. Those charges are as follows:

 

 

Energy Charge – The price charged by a supplier for the actual electricity. It may be negotiated, and is set by your supplier of choice.

 

Electric Related Utility or State Charges – The following charges are set by ComEd or the State of Illinois. In theory all suppliers should charge the same rates for these charges, but in reality all suppliers bill them differently.

  • Capacity Charge – Capacity is the cost of reserving generation space on the network.  It can be billed as a rate per kWh or on a pass through basis which should use Com Ed's formula.

  • Line Losses – As electricity moves through the network of poles and wires, energy is used.  The amount of electricity measured is less than originally produced at the generation facility.  To account for this variance for any product that does not include losses, supply costs are multiplied by system loss factors to determine this cost component.  It can be billed as a rate per kWh or as a percentage of your usage.

  • Ancillary Charge – PJM charges ancillary fees to recover the administrative costs of overseeing the

       markets and supportive transmission services.  It’s generally billed as a rate per kWh.

  • Transmission Charge – Transmission costs are associated with the transportation of electricity from

       the generating station to the distribution system.  It’s generally billed as a rate per kWh.

When To Lock Rates

 

        It is important to understand that no one knows what the electric market will do in the future. The main factors driving the electric market are temperatures, natural gas prices, the economy, hurricanes, oil prices and regulatory issues. All of these factors are difficult or impossible to predict, making electric rates impossible to predict. 

 

      Obviously, you want to lock your rates on the day the market reaches its low. While we can not tell you what the market will do going forward, we can tell you where it is now by historic standards, what the current trend is, how current offers compare to your existing rate, as well as how favorable the factors driving the market are. Knowing this allows us to make an educated decision whether it is currently favorable to lock your rates. If it is favorable to do so, we recommend locking them and not trying to out guess the market.

 

Term Length

 

      The next question you should ask prior to locking into an agreement with a provider is what term length is most advantageous for your organization. Because we don’t know what the market will do going forward, we cannot guarantee whether short or long-term agreements are more advantageous.  Some questions to consider are:

 

  • The difference between short term and long term pricing. 

    • What are the odds that the market will increase/decrease over the long term?

    • If the pricing is close, is there a benefit to a longer-term agreement to achieve budget certainty for a period of time?

  • Is there a possibility that you organization will be sold, close or move in the future? If you are planning changes, please discuss this with us so we can help you plan for those changes.

    • If you are sure that no changes are pending and long-term rates are close to short-term rates, you may want to consider long-term rates.

  • What is the current status of the market? The market moves throughout the year. If you are locking your rate when the market is high, but are doing so because you are approaching your contract expiration date, you may want to consider locking short term and then watching for an opportunity to lock long term once the market drops. If you are locking when the market is down, it may be advantageous to lock for a longer term.

  • What is your comfort level with long-term agreements? Many of our customers are simply not comfortable locking into long-term agreements. If you are not comfortable doing so, don’t.

Electric Purchasing Guide

 

One of the more important things we do is vet suppliers. We frequently receive callsfrom suppliers who want us to send them customers. If a supplier offers a quality program we'll add them to the list of suppliers we recommend. Some of the things we consider are as follows:

  • Does the quoted rate include all electric related charges? This includes, the cost of electricity plus the following Com Ed electric related charges: capacity, transmission, line loss and ancillary.  

    • Under Illinois law the supplier you select must bill you for all these charges.

    • If one or more of these charges are excluded the quoted rate will be lower but you will be billed for the additional charges, increasing your overall rate.

  • Is the quoted rate a fixed rate or a variable rate?

    • If it’s a variable rate it will change from month to month.

  • Can the supplier change your rate as capacity PLC changes?

    • Com Ed measures the spikes in your usage five days during the summer.  The capacity charge you pay is based in part on your capacity PLC, the average of the five spikes Com Ed measured and this changes every June 1.

    • We’ve seen many suppliers increase rates if PLC’s increase, but have never seen a supplier reduce a rate if PLC’s drop.

    • PLC’s for the following June are generally announced in December.  If update PLC’s are not used and your PLC is increasing the supplier can quote a low rate and increase it as of June.

    • Does the supplier use the material change or change in law provision  in their agreement to increase rates is PLC’s increase?

  • Does the supplier impose contract quantities or bandwidth restrictions?

    • If yes, either your rate will change if your usage fluctuates outside the stated restrictions or your agreement can be terminated, triggering early termination charges.

  • How does the supplier define a material change? 

    • We define a material change as a change that is so great that it was not foreseeable, such as vacating a building. Changes in usage due to temperatures or installing energy efficient equipment should not trigger the material change clause.

    • What is their track record of changing rates based on this change?

  • How does the supplier define a change in law?

    • We define it as an unexpected change in one of Com Ed’s electric related pass through charges. 

  • What are the renewal terms?

    • What happens upon expiration of the agreement?

      • Renews month to month

      • Sent back to utility

      • Auto renewal for another term

    • Can the supplier send a renewal offer letter requiring you to respond to avoid the agreement auto-renewing?

    • Is notice required if you don’t want the agreement to renew?

      • How many days notice?

      • Does the notice need to be sent within a specified window of time?

      • Is there other, restrictive language making it difficult to terminate the agreement?

    • If a termination letter can be sent but the supplier can send an auto renewal letter, will they confirm in writing that the termination letter takes precedence over the renewal offer letter?

The issues involving supplier's contract language can be complex, and we're happy to answer any questions you may have.