Five Things You Should Know About Electricity Deregulation

This fall, many associations featured an APPI article about electricity deregulation in their newsletters and magazines. Five Things You Should Know About Electricity Deregulation is a short article that makes understanding the electricity market quick and easy for your members. If your association has not shared this article with your members, contact Heidi Bishop at hbishop@appienergy.com today to discuss how the article can be personalized to reflect your members’ specific needs.

1. Oil and Natural gas prices are rising.

Oil and natural gas have been on a steady increase for the last decade and show no signs of slowing. Both oil and natural gas contribute to the costs of energy production. Currently, 19% of electricity is generated with natural gas turbines and this portion is expected to increase to 30% by 2020.  Coal still accounts for 50% of electricity production.  Not only does production continue rising, but world-wide economic and political activity continues to dramatically impact all energy commodity prices. Furthermore, overall energy consumption in the U.S. and in developing countries has grown at unprecedented levels, particularly in China and India. It is hard to imagine that energy costs could possibly decline despite all these trends.

2. Electricity prices change constantly.

While the overall trend is upward, electricity prices are volatile and change hourly. The price you pay for electricity is dependent upon a multitude of factors. In addition to demand and consumption, the cost of electricity is also dependent upon geopolitical considerations, hurricane activity, the economy, storage, capacity, market timing, your load profile, and many other dynamic factors.  With an ever changing rate that fluctuates throughout the day, it would be impossible for any business manager to stay abreast of the energy market. In fact, power prices are the most volatile of all traded commodities. 

3. You have already been switched.

If you live in a deregulated electricity state, your electricity supplier only provides you with transmission and distribution of power, not generation. The generation of power becomes separated from its delivery during deregulation, meaning your electric company purchases energy on the open market. While you do not know where your electric comes from- do you really need to? Electricity is a commodity like sugar or wheat. Since the product is the same no matter where it comes from: Why pay more than you have to?

4. Avoid price risk. Find a fixed rate.

If you anticipate energy costs to continue rising, the ability to lock in today’s rate is a valuable opportunity. With projected electricity costs rising 10-15% each year, a fixed rate contract provides budget certainty and savings against increasing prices. 

5. Businesses need an energy strategy.

As business leader you should proactively find an energy solution. Without a strategy, your business is vulnerable to increasing rates and price volatility. APPI’s consultants have the expertise and experience to help members develop cost saving energy solutions.

 
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 Illinois Electricity Market Still Provides Savings for Businesses

APPI has continued to keep association executives up to date on the changing Illinois energy market, issuing a press release on August 29^th explaining new legislation.  Currently, Illinois businesses are continuing to pay the tariff rates set in January, 2007. Savings opportunities are available in Illinois if businesses choose a competitive supplier to provide electricity at prices below the increased tariff rates. In May of 2008 new tariff rates will be effective and the market will change again. It is expected that prices will continue to increase. Members have been advised to contact APPI as soon as possible to discuss how recent and upcoming changes affect their businesses.

“APPI customizes solutions for electricity consumers of all types.  We provide a thorough analysis, recommendations for proceeding, and manage the entire process for our electricity customers,” explains Walter Moore, APPI President & CEO. 
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 Texas Electricity Market Continues to Evolve

The switch to market based rates in Texas began on January 1, 2007, almost exactly a year ago. Throughout 2007 and into 2008, Texans will continue to have opportunities to reduce electricity costs. While competitive pricing can provide Texas businesses with choices and lower prices, these savings become harder to measure without the Price to Beat (PTB) tariff rate.  Even without a current PTB to measure against competitive offers, Texas businesses should consider fixed price contracts for budget certainty and risk avoidance.

Based on current energy market dynamics, historical trends, and prices in the energy futures markets, APPI believes that electricity clients in deregulated markets should strongly consider fixed-price supply contracts with terms of two to five years. Clients who implement long term fixed price contracts reduce the risks of price volatility, price increases, seasonal changes, and other unpredictable factors. If electricity prices continue to increase, locking in today’s rates provides additional savings over time while planning with an electricity cost that provides budget certainty. With a long term fixed price contract, there may be short periods, perhaps in the first year, when the fixed price does not yield savings when measured against a tariff. However, by the end of a long term contract the overall savings and risk avoidance can be significant. 
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 Meet APPI Consultant: Les Katona

Les Katona, Energy Consultant at APPI, joined the team in early October, 2007.  Before coming to APPI, Les spent 22 years in the pharmaceutical industry; first in pharmaceutical sales and, later, in pharmacy-related systems and software sales and support, project management, training and consulting, travelling extensively throughout a 16 state territory that comprised the Northeast Sales Region of McKesson Corporation. A military veteran, Les holds a BA in Sociology from Washington & Lee University in Lexington, VA and has completed several years of graduate studies at the University of Pittsburgh. 

On a daily basis, Les assists clients with electricity procurement and utility audits. “As a relatively new consultant, I’ve been consistently impressed with APPI’s business model and professionalism. The knowledge base here is second to none and the welcoming and supportive environment makes it easy to excel; to arrive in the morning enthusiastic, motivated and eager to make a contribution.”  Outside of work, Les enjoys his home on the water, his family, his dogs and his hometown Steelers on Sundays in the Fall.

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 Happy Holidays From The APPI Team

HAPPY HOLIDAYS! 

Best wishes for

a prosperous 2008!

From your friends at APPI
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