AEP Energy- The Complexity of Electricity Pricing Post Competition

AEP Ohio Economic Development Forum
September 17th, 2012

Scott Slisher, PE, CFA, LEED AP
AEP Energy

9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved. 1

About AEP Energy
• AEP Energy makes it easy for customers to buy, manage and use energy. A
competitive supplier of power and energy management since 2002, we serve more
than 180,000 customers and operate in 20 utility service territories across the U.S.

• AEP Energy is a subsidiary of American Electric Power Co., Inc., one of the nation’s
largest electric utilities and a Fortune 200 company

• AEP Energy's mission is to "help customers use less energy and spend less for
it" has made us one of the fastest-growing energy suppliers in the country

• AEP purchased BlueStar Energy Solutions in March, 2012, combining it with AEP
Retail Energy to create AEP Energy


Topics

 Power Industry Overview
 Reducing Power Costs
 Generation Shopping
 Distribution Optimization
 PJM Programs
 Energy Projects
 Wrapping it up

3
9/18/2012 Copyright © AEP Energy, Inc. All Rights Reserved.

Power Industry
• Three major segments
– Generation – Actual creation of the
power
– Transmission – Moving the power at
high voltages to load centers
– Distribution – Distributing the power
at lower voltages for customer use


Industry Structure
Generation Transmission Distribution

FERC PUCO

Power Purchases
• Retail customers purchase power from their local
distribution utility
– Rate schedules or Tariffs are the set prices for power service
• IOU Rates are regulated by the PUCO
• Municipals and coops can set their own rates
– Customers can choose which rate structure they want
• There are limits for eligibility based on customer size and type
• Most customers don’t know that they can change rates
– Rates have been increasing over time as utilities cost of business
has risen
• Environmental rules, aging equipment, reliability improvements,


Ohio IOU Territories

Look up link:
http://www.puco.ohio.gov/pucogis/address/search.cfm
7

Deregulation – Generation Costs
• Ohio deregulated its power industry over 10 years
ago…
– Little activity since regulated rates were lower than market
– Customers of Municipals or Coops are not allowed to shop
• What is deregulation?
– Deregulation allows customers of IOUs to choose (shop for) an
alternative supplier for generation service
• Distribution is still provided by the IOU
– Customers who do not shop continue to receive “bundled”
(generation included) service from their utility


How Shopping Works
Unbundled (shopping) Bundled (no shopping)
 IOU Service  IOU Service
– Buy under regulated rate – Buy under regulated rate
• Distribution (Transmission) • Generation
• Transmission
– Price is set by IOU with
• Distribution
PUCO approval
– Price is set by IOU with
 Supplier Service PUCO approval
– Buy under negotiated
contract
• Generation, Capacity,
Transmission
– Price is negotiated
9

Topics

 PJM Programs
 Energy Projects
 Wrapping it up

10

Reducing Power Costs

Price =
Gen & Trans
+
Consumption Cost
Distribution

Improving the Bottom Line
– Reduce the commodity price (Generation)
– Optimize Distribution costs
– Reduce power and natural gas consumption to compounds savings


Topics

 PJM Programs
 Energy Projects
 Wrapping it up

12

Shopping Generation
• Select Competitive Retail Electric Supplier (CRES)
• Choose contract length (up to 3 years is norm)
• Product options include:
– Fixed price full requirements
– Index – (various index basis)
– Heat rates
– Block Pricing – Good option for new operations
– Renewables
• Pass through options (capacity and transmission)
• Change in law or loads
• Credit provisions
• A word on agents (brokers and aggregators)
13

Keys to an Effective Energy Supply Strategy

1. Consider your physical (how and when you
use power) and financial (how your energy
spend affects your bottom line) profile.

2. Always have a long-term strategy, even if
you’re executing short-term purchases.

3. Actively manage your energy supply
portfolio to reflect changes in your business,
how you use power, and market events.


Key Energy Market Factors

• New EPA regulations will increase the marginal cost
and reduce supply of coal-fired plants.
Coal is a key intermediate and peaking fuel in most U.S.
markets.

• Significance of intermittent and costly renewables in the
overall supply mix is increasing.
Renewables are higher cost and require additional ‘back-up’
generation.

• New supply of natural gas is generally from non-
traditional, more costly sources.
Non-traditional sources, such as shale, LNG, and offshore,
require significant infrastructure spends for new pipelines,
exploration, and regasification terminals.


Topics

 PJM Programs
 Energy Projects
 Wrapping it up

16

Tariff Selection
• The IOUs have multiple rates and options that customers
can select
– Most customers don’t know that they can change rates!
• The rate options are usually limited based on the peak
load and the type of business
• Typical options include
– Time of Day rates
– Seasonal rates
– Time of Use rates
– Interruptible power
– Energy storage options

17

What Drives the Bill?
kW – What was your top speed?

kVARH – How often
do
you stop and start?

kWh – How far did you
go?

Distribution Rate Management
• Customers can manage some portion of their distribution
bill through demand controls
– Monthly peaks are often of very short duration
• Nature of service voltage and ownership are important
– Where does the service start for the customer?
– What is the cost for other service voltages?
– What are the assumed loss factors?
• Consolidating accounts can reduce peak demands and
per account charges
• Rates should be modeled for complete understanding

19

Topics

 PJM Programs
 Energy Projects
 Wrapping it up

20

PJM Programs
• PJM is the regional transmission operator for all of Ohio
• Offers many opportunities for loads to make money or
reduce costs
– Demand Response – Reducing demand during emergencies
– Economic Load Response – Change consumption for payments
– Ancillary Services – Rapidly change load for payments
• Customers can also reduce costs by managing their Peak
Load Contribution directly
– Capacity costs
– Transmission costs (when not billed through tariff)


Topics

 PJM Programs
 Energy Projects
 Wrapping it up

22

Energy Projects – Reducing Volume
• Investments in energy efficiency or distributed
generation:
– Reduce operating costs
– Improve sustainability/Reduce GHG
– Offer good PR
• Energy Efficiency – Lighting, HVAC, VFD motors,
refrigeration, servers, building and process controls
• Distributed Generation – CHP, Solar, back up generation,
waste heat recovery
• Projects should be selected based on traditional
measures and client preferences


Making Projects Work
• Energy Efficiency projects are eligible for EE/PDR
programs
– Utility rebates, audits and other incentives
– New facilities are also eligible (above code)
– Also eligible for PJM EE capacity
• EE projects may also qualify for Section 179d tax
deductions (building improvements)
• Renewable energy projects qualify for investment tax
credits, participation in Renewable Energy Credit (REC)
markets, and other incentives
• All projects need to fully consider the complete impact on
after tax cash flows


Topics

 PJM Programs
 Energy Projects
 Wrapping it up

25

Optimizing Power Costs for
Economic Development
• Evaluate the distribution options
– Econ development rates
– Service voltage and accounts
– Tariff options
• Choose the supply option
– Strategy first then supplier, product, and term
• Evaluate the site
– New build – energy efficiency selections and renewables, LEED
requirements
– Existing – benchmarking to identify energy efficiency retrofits
• Select PJM programs
• Manage the operation

AEP Energy- The Complexity of Electricity Pricing Post Competition

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (16)

En vedette

En vedette (20)

Similaire à AEP Energy- The Complexity of Electricity Pricing Post Competition

Similaire à AEP Energy- The Complexity of Electricity Pricing Post Competition (20)

Plus de AEP Economic & Business Development

Plus de AEP Economic & Business Development (12)

Dernier

Dernier (20)

AEP Energy- The Complexity of Electricity Pricing Post Competition