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The Budgeting & Financial Planning Committee Presents Budgeting for Energy Costs May 4, 2005

The Budgeting & Financial Planning Committee Presents Budgeting for Energy Costs May 4, 2005. Presented By: Steve Kowalski David George Curt Saindon. For any information related to this presentation Contact: Steve Kowalski Siemens Building Technologies (847) 493-7756.

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The Budgeting & Financial Planning Committee Presents Budgeting for Energy Costs May 4, 2005

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  1. The Budgeting & Financial Planning Committee PresentsBudgeting for Energy CostsMay 4, 2005 Presented By: Steve Kowalski David George Curt Saindon For any information related to this presentation Contact: Steve Kowalski Siemens Building Technologies (847) 493-7756

  2. Proposed Discussion Topics • The Energy Markets • Where is it? • The next 24 months • Factors that influences price • How does the market affect your budget? • Ways to affect your costs today • Case study discussion – Kankakee Schools • Overview of the Primary Illinois Utility Rate Programs

  3. The Energy Markets Where is it? • Fragmented – Deregulation stumbling, power market is not liquid • Still volatile • Confused – Not responding to technical or fundamental trading signals or • analyst predicted levels • At all-time historical highs • Now driven by multiple factors, previously unrelated

  4. 1 year strip NYMEX continuation chart As recently as 4-04, you could have locked a two-year deal at $5.25 MMBtu And saving $$$$

  5. The Energy Markets The next 24 months… • The energy market experienced extreme volatility last quarter and the next • quarter should see a repeat performance. • Fundamental factors suggest that we have seen a top in the energy • market, but the technical indicators continue to point in an upward • direction. • Natural gas and electricity have both tied themselves to the crude oil • market and as long as crude remains volatile, predicting energy prices will • continue to be complex. • Current analyst predictions call for natural gas to be priced in the $6.90 to • $7.00 per MMBtu range for the 2005 and 2006 time periods...Note that we • are currently well above these projections, and at historical highs in the • market!

  6. The Energy Markets The next 24 months… • Beginning to see the fundamentals take control of the market as prices • are starting to move toward the 2005 / 2006 projected price levels. • Market electric rates above the utility Standard Offer and Default Rates • as a result of the crude oil and natural gas market. • Employ a strategy for the next quarter to monitor the market for any • downward movement and take advantage when opportunities present • themselves if you are able to do so. • The Standard Offer or Default Rate may continue to be below what the • market offers. Review, monitor and consider the economics of a • switch back to the utility for the next 12 months. • General market analysis opinion is that it may be a favorable time to • investigate locking or partially hedging your energy supply prices.

  7. The Energy Markets Factors that influence price • State PUC’s and state regulatory status • Lack of market liquidity and competition (Power) • Weather • Drought in the Southwest (Hydro) • Speculative market fear and subsequent market reaction • OIL • Gas-fired electricity peak generators • Exponential increases in global demand • Lack of domestic production in correlation to price incentives to drill • Storage levels (Natural Gas)

  8. The Energy Markets How does the market affect your budget? • Market pricing is only a fixed dynamic point in time. In relation to your budget, a market price is only good for the point in time in which it was viewed. If you cannot act dynamically to leverage market dips, then it will not work to your advantage. ~ This is managing execution risk. • Implement a proactive and strategic plan to manage to your budget, and never plan to beat the market, and you will never be at the mercy of market volatility. ~ This is mitigating cost risk. • Know your budget’s “threshold for pain” and utilize price targets accordingly: Select a high range, a realistic target based on market forecasting and let your budget number for energy act as the low target. Setting triggers utilizing your planned price targets can minimize volatility and execution lag ~ This is risk management. • Coordinate your plan to issue commodity RFP’s to suppliers a minimum of 60 days in advance of existing supplier agreement expiration. Think outside the box. do not simply ask for a price to renew for 12 month period. Challenge suppliers to earn your business by suggesting alternatives to simply submitting a price.

  9. The Energy Markets Ways to affect your costs today • Leverage 3rd party opportunities to procure supply • Utilize the expertise of an ESCO to maximize market opportunities and • minimize execution risk for supply-side management • Engage and challenge your local utility representation and your suppliers! • - work together to fully understand your contracts • - investigate any potential for rate relief, i.e. S/W 18-30 mo. Terms, etc. • - discover and implement advantageous programs offered • - understand criteria for incentives and rebates and implement

  10. The Energy Markets Ways to affect your costs today • Develop an ENERGY CHARTER to help focus and set goals for EM • Proactively manage energy forward to mitigate cost risk & budget volatility • - implement an integrated strategic energy program that can affect • any cost area that energy touches – supply, demand and utility • management • Reactive, or the S-Q-U-A-T (Status Quo Utilities Avoidance Technique) • strategy • The KEY is obtaining timely INFORMATION combined • with proactive planning and strategic ACTION!

  11. The Energy Markets Ways to affect your costs today Possible Strategic Energy Program Components • SEP Value Proposition • Predictable Energy Costs • Reduced Energy Usage & • Energy Operating Costs • Shared Risks • Single Vendor Source of • Responsibility – Supporting • all points along the energy • value chain • Extends Your Internal • Capabilities • Cost Avoidance & Cost • Management Operate • in Unison • Load Profiling • Utility Bill Management • Rate and Tariff Assessment Utility Information Services Supply-side Management Services • Risk Management • Commodity Procurement • Supplier and Contract Mgmt. Demand-side Management Services • Demand Optimization • Infrastructure Improvements • Incentive-based strategies • Performance Guarantees • Financial Services • Asset Rationalization Business Solutions

  12. Discussion with The Kankakee Schools

  13. Overview of the Primary Illinois Utility Rate Programs

  14. The Energy Markets Energy supply options available in IL Peoples Gas Rate Summary Service Class 2 - General Service Tiered distribution charge with a $15 or $22 monthly fee. Rate includes Gas Charge, Customer Charge, and a Distribution Charge. Service Class 3 – Large Volume Service Constant distribution and demand charge, $300 monthly fee. Rate includes Gas Charge, Customer Charge, Demand Charge, Distribution Charge, and a Standby Service Charge. For customers with average monthly usage >4,100 Dth. Service Class 4 – Large Volume Demand Service Constant distribution charge, tiered demand charge, $1000 monthly fee. Rate includes Gas Charge, Customer Charge, Demand Charge, Distribution Charge, and a Standby Service Charge. For large customers with high load factors.

  15. The Energy Markets Energy supply options available in IL Peoples Gas Rate Summary All can subscribe to Rider FST – Full Standby Transportation Service. Rate 2 can subscribe to SST – Selected Standby Transportation Charge, and Rates 3 and 4 can subscribe to LST – Large Volume Selected Standby Transportation Service. Summary Peoples Gas and North Shore Gas have nearly identical tariffs, and are owned by the same parent, Peoples Energy. We do not have many customers behind Peoples, but have found some savings. Rider 2 – Gas Cost, is the applicable gas supply rider for bundled customers, and that cost changes monthly, so it can quickly respond to changing market prices.

  16. The Energy Markets Energy supply options available in IL Nicor Gas Rate Summary Rate 4 - General Service Tiered distribution charge with an $11.50-$100 monthly fee. Rate includes Gas Charge, Customer Charge, and a Distribution Charge. Rate 6 – Large General Service Rate has a constant distribution charge and $450 monthly fee. Rate includes Gas Charge, Customer Charge, and Distribution Charge. Available to any customer, and has a minimum bill of $2,800 plus Gas Supply Cost. Rate 7 - Large Volume Service Rate has constant commodity charge, tiered demand charge, $573 monthly fee. Available to any customer, and has a minimum bill of $6,000 plus Gas Supply Cost.

  17. The Energy Markets Energy supply options available in IL Nicor Gas Rate Summary Rider 25 – Firm Transportation Service Transportation rider available to above rates for accounts without proper telemetry connection. The rider allows transportation services, but is not as economical as rates 74, 76, 77. Rate 74 - General Transportation Service Transportation rate for smaller customers (most schools). This has a low monthly fee ($24) and no minimum bill. Rate 76 – Large General Transportation Service Transportation rate for mid-sized customers. This has a $474 monthly fee and a minimum bill of $1,900+. Rate 77 – Large Volume Transportation Service Transportation rate for large customers. This has a $597 monthly fee and a minimum bill of $6,000+.

  18. The Energy Markets Energy supply options available in IL Nicor Gas Rate Analysis Customer usage level dictates what rate level is best (between 4, 6, 7 or 74, 76, 77). The required minimum bill can be used as an indication of the best rate for a particular customer. The best available rates for transportation customers are the 7_ rates. Rates 4, 6, and 7 are general rates that can be combined with Rider 25 for transportation, but cost more. Rates 74, 76, and 77 require a customer installed phone line to the meter, with proper telemetry equipment installed by Nicor. NICOR HAS VERY STRICT INSTALLATION REQUIREMENTS. The telephone line must be installed exactly to Nicor’s specifications, and a company representative should be on hand for the installation. If the service/meter rep has any problems, such as no dial tone, incorrect location, etc., they will leave, and the account is then ineligible for the desired rate for the next 12-months.

  19. The Energy Markets Energy supply options available in IL ComEd Rate Summary Rate 6 – General Service Except as provided in Rate 6L, Rate 6 generally applies if your monthly maximum demand is consistently less than 1,000 kW. Rate 6 includes three forms of billing : (1) a Non-Time of Day provision generally applicable if your monthly maximum demand is consistently less than 500 kW, (2) a Time of Day provision generally applicable if your monthly maximum demand is consistently 500 kW or more but less than 1,000 kW, and (3) an Optional Time of Day provision that can be elected even if your monthly maximum demand is consistently less than 500 kW.

  20. The Energy Markets Energy supply options available in IL ComEd Rate Summary Rate 6L – Large General Service Except as noted below, Rate 6L generally applies if your monthly maximum demand is consistently equal to or greater than 1,000 kW and less than 3,000 kW.   Beginning with the June 2003 monthly billing period, with certain exceptions as provided in the tariff, Rate 6L will not be applicable or available to you if you have monthly maximum demands of 3,000 kW or greater three or more times in each of the two most recent calendar years or if you expect to have demands of that magnitude.  One of the exceptions noted in the tariff allows an existing customer with demands of 3,000 kW or greater that is taking service under Rate 6L on the first day of their June 2003 monthly billing period to continue service under Rate 6L through their December 2006 monthly billing period if the customer continuously takes service under Rate 6L and provides proper notification.  For the other exceptions, see the tariff.  

  21. The Energy Markets Energy supply options available in IL ComEd Rate Summary Rate 6L includes two forms of billing:  (1) a Time of Day provision and  (2) Heating with Light provision.  The Heating with Light provision is only available to customers currently taking such service.  Customers served on Rate 6L may be eligible to elect Rate 6 if your monthly maximum demand remains below 1,000 kW for extended periods of time.  Certain equipment rentals may apply in such circumstances.  Details are specified in the Rate 6L tariff. Rate 18 – Standby Service Rate 18 generally applies if you operate your own electric generating facilities solely to meet your own on-site electric needs or if you use another form of energy in the operation of equipment and ComEd's electric service is used as a standby, auxiliary or reserve service.

  22. The Energy Markets Energy supply options available in IL ComEd Rate Summary – Additional Rate Opportunities Rider 25 – Electric Space Heating Rider 25 Rate RCDS – Retail Customer Delivery Service (unbundled). Rate RCDS is an optional tariff that provides the terms, conditions and charges under which ComEd delivers electricity to retail customers on an unbundled basis. ** RCDS Rates are divided up by usage; less than 25 kW, 25-100, 100-400, etc. up to >10,000. Rates are slightly different for each level, and ComEd will automatically switch the account between levels as often as the usage indicates. Rate CTC – Customer Transition Charge (for unbundled)

  23. The Energy Markets Energy supply options available in IL ComEd Rate Analysis Most schools are not big enough to be on anything but Rate 6 for bundled service. Rate 6 is normally not a good deal, unless market prices fall (as in March 05) to beat the utility standard offering. Generally, schools have three options: - Rate 6 bundled - RCDS Power Purchase Option (PPO) - RCDS with 3rd party supply. The lowest cost rate is RCDS PPO, then RCDS 3rd Party, then bundled. For several years the PPO program has offered a very competitive alternative.

  24. The Energy Markets Energy supply options available in IL ComEd Rate Analysis Rates are set annually in February for the next year beginning in June. Customers can enroll in the PPO between Feb and April, then it is no longer an option. The PPO program is ending on December 31, 2006, so there will only be one more enrollment period next year, for the last half of 2006. Customers will then need to pick between bundled or 3rd party. Another component is the Customer Transition Charge (CTC), applicable to RCDS customers. This is also going away at the end of 2006. The way CTC’s are calculated, they are inverse to the PPO rates. If the Market Value Energy Costs (MVEC- the generation prices) go up, then the CTC’s go down an equal amount. CTC’s are published in the tariff for smaller customers <400kW, but custom calculated for larger accounts. The CTC’s calculated for this year are $0 for some customers. If that is the case, then that customer is not eligible for PPO, and can only go to bundled or 3rd party.

  25. The Energy Markets Energy supply options available in IL • Central and Southern Illinois Gas and Electric Summary • POWER • Ameren Illinois Power - 3 services available • Bundled – Utility provides all service a.k.a. “The do nothing strategy” • Delivery Service or Unbundled – Generation portion of service is separated and provided by an authorized supplier. All other services are provided by the utility. • Two options: • RES – generation is purchased from an approved Alternative Retail Electric Supplier (ARES) that is registered with Ameren Illinois Power. The ICC must also certify the ARES to do business in Illinois.

  26. The Energy Markets Energy supply options available in IL • PPO – Open to non-residential customers who wish to purchase electricity from Ameren Illinois Power on a regulated basis at a Market Value Power Purchase Option. • Transition charges expire at end of 2006. Only customers with TC’s are eligible for PPO. • Unbundled Metering Service – Open to non residential Delivery Service customers. They may select another provided for metering services • Must be non-residential currently signed up for Delivery Service on all meters on the account. Once dropped, customer can’t choose for 12 mos. • Ameren CIPS and CILCO • Currently offer unbundled service, but no PPO. Comparison is Bundled vs. Unbundled

  27. The Energy Markets Energy supply options available in IL • GAS • CIPS (Central and Southwestern IL) Several applicable rate schedules • Bundled • General Rate 2 – this rate is open to all customers within the territory served by CIPS • Unbundled • Rider T – Transport Gas and Standby service – this is open to non-residential customers within the service territory under rates 2, 3, and 4. • There are 3 designations for stand-by service: • - Full stand-by default if customer does not make a selection • - Full stand-by made by customer selection • - Partial stand-by made by customer selection

  28. Ancillary Information on Energy Rebates and Approximate Electricity Costs in IL and U.S.

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