Electricity Buyer Today
With 2016-2020 Commercial Electricity Prices 20%- 25% Lower Than 2015 Rates, Is Now A Good Time To Lock in Your Next Electricity Contract?
by Joe Quenet on 11/22/15
How A Reverse Auction For Electricity Can save Up To 15%
by Joe Quenet on 04/07/14
Regardless of when your current energy contract ends, our new E-Procurement Reverse Auction Portal offers a no-risk, high-value solution that services all customer types in all 17 states (including DC) with deregulated energy markets.
Utilizing our new Reverse Auction Platform (see video), your historical usage and future start date is sent to as many as 15 leading regional and national en
At TEPS we understand that while smaller businesses have challenges similar to larger enterprises, they often lack the necessary resources to keep overhead costs under control. This is especially true when it comes to energy procurement, where most brokerage firms either restrict their reverse auction platforms to larger customers, or simply do not have the technological advancements that we can offer.
ergy providers to participate in the bidding war. Combining this premier level of competition with our refined risk management approach, energy procurement takes just a fraction of the time and your bids can come in 5%-15% lower than a traditional energy procurement RFP done on the same day.
At TEPS we will work with you throughout the entire auction process to:
- Assess your energy needs
- Share strategies and insights
- Answer your questions
- Estimate your potential savings
- Act as your personal consultant every step of the way
The best part: There is no cost to run the reverse auction, there is no obligation to lock-in a rate, you’re free to choose whichever supplier that you believe provides the greatest value or you’re free to reject all suppliers.
At TEPS a reverse auction is just another tool available to helpachieve your goals of lowest cost, favorable contract terms, and budget predictability for your energy spend. It’s Simple. It’s Fast. It Saves. It Works.
For more details, please visit our new E-Procurement Portal atwww.texaseps.com.
As 2014 Electricity Prices Escalate Above 6 Cents, Calendar 2015-2018 Rates Are Still Available Below 5.5 Cents As Buyers Rush To Lock In Savings.
by Joe Quenet on 03/07/14
Texas Electricity Prices Reach $5,283 MWh Amid Freezing Temps
by Joe Quenet on 01/07/14
The
“Energy Only” or Capacity Markets, Which is Better for
Monday's emergency is
sure to complicate the debate about the need for more generation in
What Can
Whether we go to a Capacity
Market or stay with an “Energy Only” market, high prices are an indication of a
problem, but do not provide the right incentive to fix it.
Is Your Texas Electricity Rate Below 5.3 cents/Kw through 2017?
by Joe Quenet on 10/15/13
Is This 2013's Last Opportunity To Lock In Year-Over-Year Savings?
by Joe Quenet on 08/02/13
Energy Prices Head Toward Their Traditional Seasonal Highs, Is This Your Last Opportunity To Lock In Year-Over-Year Cost Savings?
It's just a simple fact. All electricity contacts only satisfy your company's needs for the term of the contract, and until your facilities close you're always in need of electricity. With seasonal energy prices about to head higher as they normally do, now is your final window of opportunity to save money compared to your present rate, especially if you're coming off a 24 or 36 month contract or within a year of your next renewal date. While waiting longer could result in lower prices, we believe there's a much greater risk of higher pricing given that the market is already skewed to the upside due to normal winter demand and mandatory coal plant retirements required by the EPA.
As the chart below shows, over the last 22 years natural gas (which is the primary fuel used in power plants) has tended to provide it's lowest annual pricing in August and September, and this year looks no different. Historically, prices have consistently tended to rise into October and November as the industry tries to build it's inventory to meet cold-weather demand, with an additional increase into April as warm-weather distributors accumulate their own inventory to generate electricity and meet regional cooling demands.
Where are we historically?
The chart below exhibits two seasonal patterns: the most recent 15 years (dotted) and the entire 22 years of the Natural Gas contract (solid line). The graph reaching zero represents the seasonal low (the time of year when prices are most consistently low); the graph at 100 represents the seasonal high (when prices are most consistently high). The graph at 20 represents when prices have tended to be in the lower 20% of the year's eventual range.
Where are we today? Need More Confirmation?
Now look at the chart below. It was taken today (8-2-2013) and shows that this year's seasonal price movements have followed their traditional patterns almost 100%. It is our opinion that the next few weeks will provide the final opportunity to lock in the lowest electricity rates we'll see in the next 6-12 months. Now is the time to act!
Already Use a Broker?
Just because you currently utilize the benefits of a broker does not guarantee that you're seeing the lowest rates available. With over 100 licensed retail electric providers in Texas alone, doesn't it make sense to utilize all available resources to be sure you're really seeing the most aggressive rates? Why not let someone else also compete for your business? You have nothing to lose.
In closing, the opinions expressed above are strictly my own based on over 25 years of trading experience in the wholesale energy market. Unlike most brokers and consultants who prefer to stay neutral in order to “never be wrong”, I believe that clients need more than just “numbers and choices”. Anybody can supply that. Has your current broker called and offered such information and advice? Have they really earned your business?
2013-2016 Commercial Electricity Quotes... For Free
by Joe Quenet on 06/13/13
The $200,000 + Risk In Your Next Electricity Contract
by Joe Quenet on 05/29/13
Electricity Procurement 2013: How “Doing Nothing” Becomes A “Net Short” Trading Position.
by Joe Quenet on 05/14/13
Today, every business enterprise uses electricity in one form or another to manufacture their product or deliver their service. Whether they “buy, transform and sell” or “buy, add value and deliver” they need to be equally good at all three aspects if the business is going to be successful. Resources are needed at one end of the business just as much as customers are needed at the other as long as your facilities are operating.
Despite significant challenges and economic pressures to improve performance, many organizations still seem satisfied if their electricity procurement efforts simply deliver value through cost savings. But with the recent doubling of natural gas prices from 10- year lows, there will no longer be an opportunity to reduce electric costs and save money.
It’s been my experience lately that most buyers are simply not willing to commit to higher priced contracts (and lock in higher budgets), denying the organization the opportunity to minimize future cost increases.
Today, most energy buyers I contact are so focused on managing the day to day procurement needs in front of them that they fail to realize (or fail to accept ) what’s going on behind them in their energy supply chain. With greater and greater frequency I hear the response: “Thank you, but we’re happy with our current contract, try back in a year”. Unfortunately, that response addresses none of the organization’s future needs. Entering into an electricity contract only satisfies the need for the term of the contract and until your facilities permanently close you’ll always be in need of electricity. But the time period after the contract expires is just as important to manage since that’s where your budget risks really lie.
Based on the information presented below I’ll attempt to show how the risk of doing nothing today is far greater than risk of being wrong tomorrow. Ignoring the current opportunity to secure future energy needs at near all-time lows could be putting the entire business at a competitive disadvantage if your competitors seize the chance. In fact, put another way, those organizations that do not lock in future electricity costs are unconsciously taking a “net short” position in the most volatile commodity on the planet. Is your procurement strategy really a trading strategy? Is that officially authorized? Electricity is the world’s only commodity that is manufactured, transmitted, distributed and consumed all within the same second. Considering that most organizations don’t have an energy expert in the procurement position, that’s the business equivalent of “playing with fire”.
Measuring the Risk vs. Reward of “Doing Nothing”.
Today, the price of natural gas directly affects the production cost and offer prices of gas generators in the wholesale electricity market. Because natural gas-fired generators are the price-setting suppliers in most hours, the price of natural gas strongly affects the market-clearing price for electricity. The chart below shows recent Texas electricity prices and natural gas prices, demonstrating the close relationship between natural gas and electricity prices.
Gas Price Risks of “Doing Nothing”
Today, although Natural Gas prices are trading just over $4.00, they’re still about $9.00 below the 2008 high and just $2.00 above the all-time low. Despite the recent surge in prices, natural gas is still close to the $4.00 estimate that S&P believes would cover the discovery, development, and production cost of natural gas. Are you willing to risk your energy budget to get a lower gas price given that the odds are so low against it? Do you know something the Gas Industry doesn't ? Given the greater odds of higher vs lower prices what are you waiting for?
Electricity Price Risk of “Doing Nothing”
Today, a generator’s basic requirement is that they can expect future revenues to be high enough, often enough, to cover the costs of building and operating a plant, including a return on capital commensurate with risk. The August heat wave of 2011 (shown as the blue spike in the top chart) led to the use of energy emergency procedures 6 times and 19 hours of prices at the $3,000 price cap. While this year’s cap is now set at $5,000 (2014 is $7,000 and 2015 is $9,000) Higher prices are needed to encourage companies to build more power plants to keep up with the expected population growth in Texas. Industry experts say generation companies that operate the state’s power plants are losing money because prices are too low for most of the year and they only make money during the hottest summer and coldest winter months. According to The Electric Reliability Council of Texas, which oversees the wholesale real-time market in Texas, prices for electricity in the region have averaged only $25 a megawatt (wholesale) hour since the beginning of the year.
Most generators have commented that 2013 and 2014 futures are probably under-priced relative to what actual spot prices will be. Further, they believe the futures market may not fully reflect new rules whose implications for prices are difficult to model. When measured against recent price history (shown above), is the limited reward of prices moving slightly lower worth the unlimited risk of prices moving increasingly higher? Better yet, is the right person in your organization making the call?
In closing, the opinions expressed above are strictly my own based on over 25 years of trading experience in the wholesale energy market, which includes managing trading on behalf of TXU. Unlike most brokers and consultants who prefer to stay neutral in order to “never be wrong”, I believe that clients need more than just “numbers and choices”. Anybody can supply that. Has your current broker called and offered such information and advice? Why’s that? Are you simply going to call them now and ask them for quotes? Have they earned your business? Probably not.
If you want somebody with the industry experience and trading expertise to help you act on the risks and rewards of today’s electricity market, contact us today. We’re waiting for your call.
Decision Time: Buy A Higher Priced Electricity Contract Today or Wait?
by Joe Quenet on 04/30/13
Forward Commercial Energy Markets Pointed Higher 2013-2016.
by Joe Quenet on 04/09/13
With this winter’s heating season slowly drawing to an end, we now have some considerable clarity into how the forward price curves for electricity and natural gas are likely to move during the remainder of this year. Contrary to most expectations of late-winter and early-spring, prices for most regions have continued to rally over the past few months. Now with the combination of hurricane season and summer price volatility around the corner, the best buying opportunity of 2013 is likely to come in the just next few months. After spring, the probability of a very hot summer—increased substantially by the extreme drought conditions still enveloping a sizeable portion of the country—is likely to help lift both near-month futures and the Calendar 2014 and 2015 strips. Later in the year, prices are again susceptible to upside risk as a winter premium is slowly built in ahead of the possibility of a very cold winter.
With both near-term
and longer term futures prices likely to remain near today’s levels we suggest that large-scale commercial and industrial
electricity purchasers should be prepared to take advantage of any opportunity
to lock in any uncovered positions for the remainder of 2013 and for calendar
years 2014 and 2015.
Fixed Price Buyers:
As the risk of higher peak pricing events in ERCOT increase, customers with index-based products might consider other options such as converting to a fixed-price product. While fixed-price transactions are likely offered at higher prices than where current index prices are settling, they also avoid the potential risk that real-time prices will spike more frequently and thus result in monthly invoice volatility and minimal predictability for business budgeting purposes.
Based on our experience, the market appears to already have hit it’s bottom for the year and overall volatility appears to be on the increase. Remember that prices are still considered very low from a long term prospective despite last year’s gains. For baseload hedges, be careful using February and March lows as price targets since waiting for this could expose your entire portfolio to summer risk and leave you without any value in the market.
Dramatic short term price spikes during 2011 cause by extreme temperatures demonstrated the risks of riding an index product un-hedged. Even if your company has a higher risk tolerance than most you should certainly consider applying hedges for certain time periods in certain regions, specifically in ERCOT now that the price caps have been raised to $5,000Mwh.
Bottom Line:
As we head into the generation maintenance season the relationship between power and gas prices can become less reliable, and it becomes even riskier to rely on just natural gas prices as the basis for your electricity procurement strategies. Recognize the fact that further gas declines, which are not likely as of this writing, may or may not result in lower prices and more importantly, don’t become paralyzed if the bottom of the market is behind us.
Texas Electricity Price Outlook for 2013-2016
by Joe Quenet on 04/08/13
Going into the 2013 summer season, electricity prices in
Although year-over-year savings may not be available, it's important to consider the huge upside risk of the spot market now that the ERCOT offer cap has been raised to $5,000/MWh beginning on
2014-2015 Outlook:
In considering longer term contracts, although prices for 2014, 2015 and 2016 are higher those offered today, they may still be worth considering. While 2012 may have been a market low, there is no going back. It’s our opinion that the impacts of the changes in natural gas production (due to reduced rig counts), a shrinking storage surplus (due to a colder winter in the
The Benefits Of Utilizing A Broker For Commercial Electricity Procurement
by Joe Quenet on 04/08/13
Energy is Energy.
Nobody sells electricity that will make your
computers run better or your lights burn brighter. It really makes no
difference who you buy your power from. When you flip the light
switch—the lights will turn on. So, if the only real difference
is the price, why would your company ever pay more than it has to?
Whether it's the energy industry, the insurance industry, or the banking industry, brokers provide a valuable service to the marketplace by generating competition that can reduce prices to the end user while also offering suppliers the opportunity to bid on customer business they may not have seen otherwise. In fact, in the case of the energy industry, energy suppliers consider brokers to be a valuable channel to the retail energy markets, allowing suppliers to have smaller in-house sales and marketing groups. This saves them the overhead costs associated with maintaining these employees as well as the marketing cost associated with acquiring customers. In fact, brokers can account for almost 75% of the volume of some energy suppliers.
When energy suppliers are forced to compete for your
business, you save money. It’s just human nature that whenever somebody
is selling a product, their offer price is usually driven lower by the
prospect of competition. If they feel that they have no competition…..the price
offered will be higher. It’s just a fact that a knowledgeable and experienced
broker can increase competition. Many suppliers will offer a lower price
to a broker as compared to giving a customer a price directly, simply
because they know they have an experienced broker involved in the negotiations
and now have to compete harder for the business. This
added competition can serve to drive the suppliers margin, as well
as your final price, downward.
Another reason that suppliers are more likely to give a
broker a better price than that of an individual company going directly to the
supplier for pricing is due in large part to the fact that an experienced
broker can place many large customers with a supplier over
the course of time. As a result, the supplier is much
more likely to give a more competitive price to the broker, not only because
they know they are competing for the business, but also because they know
competitive pricing through a broker will get them the opportunity to
compete for more of the brokers future business . When a customer goes directly
to a supplier, this "volume discount" is not usually realized by the
customer. The supplier doesn't necessarily feel the need to price as
aggressively because the customer's one contract may come up for renewal only
once every year or two. Compare this to brokers giving them the opportunity to
bid on dozens of customers per month. So, who do you think is more likely to
get the better price?
Some brokers can also offer consulting services that go far
beyond the scope of what a supplier can offer. Most suppliers are only
interested in giving a price to supply electricity, which is their core
business. They simply don't have the time or experienced salespeople that can
provide the market knowledge or strategy suggestions that can
reduce your costs. If your company's situation in “non-standard” in any
way, experienced brokers can help you structure and request quotes
on unique product offerings that most suppliers usually reserve for
only the largest and most sophisticated clients.
When faced with the prospect of shopping for electricity on
their own, most companies would be hard pressed to name more than two or three
electricity suppliers to solicit pricing from. An experienced broker
can solicit bids from a dozen or more suppliers, increasing the
probability of lower, more competitive pricing for you.
Reason #5
Unless you follow the energy markets daily like we do, it
can be difficult for customers to properly and effectively compare the
results of bids received from multiple suppliers. A suppliers bid is
based in large part upon market prices for electricity which change by the
minute. So a price received from a supplier on one day, is not directly
comparable to a price received from a second supplier on another day. This
makes comparing results very difficult. Furthermore, the contract terms
and conditions for each supplier are usually different. As an educated
buyer for your company, you need to understand the subtle differences between
the contracts. Some differences can materially affect what you pay. An
experienced broker will have extensive experience with contract language,
maintaining and reviewing all supplier contracts on a regular basis.
Not all pricing components might be included in the “all-in”
price you receive from a supplier. This will make their price appear
lower than it really is. For example, some suppliers will quote prices which do
not include certain taxes or ancillary fees. Some will add monthly fees for
each meter served, while most will impose bandwidth
restrictions or a material change clause that can have a huge
impact on your overall costs. An experienced broker will review all
supplier offers for all pricing components, making sure all items are
included so that the price you see is truly an “ all-in” price.
Finally, so who pays the broker for their service?
The broker is paid a small fee by the supplier in return
for the business that they bring to the supplier. This is similar to the
fees paid to car dealers by banks for having the customer finance their car
with a particular bank. It is also very similar to the way you purchase
insurance. In the vast majority of instances, even with a fee added, the total
cost you pay for your energy service is still lower than anything you might
have received by dealing directly with a supplier. The fee paid to the broker
for the business is reflective of the fact that the supplier is avoiding the
employee overhead and marketing expenses normally associated with acquiring the
customer through their own in-house sales force. In essence, the broker is
simply being compensated for the marketing and employee expenses associated
with customer acquisition for the supplier.
When Is The Best Time Of Year To Lock In Your Long-Term Electricity Contract?
by Joe Quenet on 04/08/13
as shown in the chart below, there’s historical
proof that long-term, fixed-price electricity contract rates tend to
go down during the fall and spring season each year as natural gas prices move
toward their seasonal lows. Today, with
natural gas prices at low levels, more and more energy suppliers are using
natural gas as the primary source to generate electricity. The
increasing percentage of natural gas in electricity generation production
has caused commercial electricity rates and natural gas prices to be highly
correlated; A rise in natural gas prices is sure to be followed by a rise in
forward electricity rates. This means that when you look to lock in long term
fixed electricity, the forward natural gas price will have the greatest effect
on the final price for power. Since electricity pricing is based on
future forward contracts fixed rates are highly correlated with natural gas
future contracts.
Market conditions like seasonal highs and lows play a major
role in determining how varying contract term lengths are
priced.
So then, how can you take advantage of the seasonal lows in electricity prices when your contracts don’t expire at the right time? It’s really a lot easier than you think.
Second, even if you’re not able to time the
renewal dates as described above, you should always look to price
and lock-in all your energy contacts during the annual lows (regardless of
expiration dates) as all months in the forward curve will generally be lower
during this same period.
Third and most important, ask yourself why your current
broker or consultant hasn’t suggested this strategy in the
past? Could it be their knowledge or experience
level? Sure, there are a lot of brokers out there. Some of them are
talented, hard-working, honest business people, and some just don’t have the
industry experience and know-how as those of us directly in the business. With
over 22 years experience in electricity, very few are as tested and successful
as we are. We know the commercial electricity market, and we
know how to help our clients develop and execute an energy strategy that can
save money and reduce risk.
How Cheap Natural Gas Drives U.S. Electricity Prices
by Joe Quenet on 04/08/13
With new domestic discoveries came a dramatic increase in
So how exactly does gas set the power price? In most regions of the US, the price paid for electricity from the last power plant fired up (to meet the last unit of demand within a given hour) sets the wholesale price paid to all previously dispatched units within that region. And since gas-fired power plants are usually the quickest to start (and most expensive to run) when compared to nuclear, hydro, wind and coal they tend to be fired up last, thereby setting the hourly price.
Today, because of this new reliance on gas-fired generation, US average
wholesale peak power prices range from $27 to $34/MWh, driven down by gas
prices that currently range from $3.50/MMBtu to $3.80/MMBtu and look to remain
below $6.00 through at least 2020 given current NYMEX futures settlements. In
comparison, this same time five years ago the wholesale electricity price range
was between $52-$55/MWh, while natural gas prices ranged between $7.00-$8.00
MMBtu, (peaking at an all-time high of $13.57 in July 2008).
Similar to
An even greater difference can be found when comparing retail electricity
prices between the
Electricity Prices Head Higher As Gas Rebounds From 10-Year Lows
by Joe Quenet on 04/08/13
Earlier last spring a plunge
in the price of natural gas to a 10-year low made it easier for
utilities to produce cheap electricity, but market expectations
of lower prices no longer look possible. Instead,
1. Prices Are Still Near 10-Year Lows
2. Current Futures Prices Reflect A Higher Trend
After hitting all-time lows in April forward calendar strips have rallied- especially Calendar 2013. While waiting longer could result in lower prices, it also increases the risk of a market surprise, which is mostly skewed to the upside due to today’s low prices. Although there is a premium for 2013 over 2012 (and 2014 over 2013 etc.) recognize the various upside risks that justify this long-term premium and that are likely to be sustained. Don’t become paralyzed if the bottom of the market is behind us.
3. High Is Higher
4. Creating a Competitive Advantage:
The main reason for locking-in or extending current contracts at today’s historically low rates is that, statistically speaking, a low fixed-price is now more likely to outperform the average of any indexed price from this point forward. But once the contract is on the books, the consequences of energy prices are no longer going to impact the business during that year.
Six Ways To Maximize Opportunities And Minimize Risks In Commercial Energy Procurement
by Joe Quenet on 04/08/13
Today, nearly one-third of the
This is probably the most important suggestion of them all.
Energy prices fluctuate every minute of the day based on external factors such
as economic growth, political tension, weather, natural gas supply & demand
figures and fuel source speculation. A savy energy buyer can take these market
factors into account, watching constantly for the next price-dip to transact
their contract renewals at optimal market times. Since energy market dips can
be very short-lived, acting quickly to lock in a low rate or renew existing
portfolios when the market is down is the key to success. While waiting longer
could result in lower prices, it also increases the risk of a market surprise
at renewal time given that the market is mostly skewed to the upside due to
today’s low prices.
Communicating things like facility production
increases/decreases can help your energy supplier do a better job of managing
their overall supply portfolio, and avoid budget surprises like “bandwidth”
penalties which most providers have in their contracts to help manage the
amount of power secured in the forward market. . Facility closures,
relocations, retrofits, or demand response participation can also impact the
energy consumption patterns of your facilities. A procurement strategy that is
proactive in nature should include consistent communication with your
suppliers, providing a “heads-up” to ensure all parties are informed of energy
consumption deviations from the past.
Every day I see examples where a company will ask for a lot
more information and strategy than they need or even understand because someone
has convinced them they should consider it. Heat Rates, Index, Block and Index,
Fixed Price. They all sound impressive over the phone and can look great on
paper, but ultimately almost 90% of the contracts executed today are for a
“fixed-price, all-in”... and for good reason. With suppliers now offering
fixed-prices in just the 7th or 8th percentile of a contract’s historical
trading range (meaning 92 or 93 percent of the time prices have been higher
than today), even the world’s greatest traders and gamblers would drool at
those odds and take the relatively “free money”. Today, if you defer a
pricing decision on a procurement contract you assume the risk of the price
being higher 92% of the time.
Use due diligence and common sense when comparing supplier
bids and ask these companies, which are competing for your business, to provide
you with a complete breakdown of all components and fees that are included or
“built into” their quote. For example, if the supplier is quoting a “fixed
price”, does it include monthly meter fees, line losses, bandwidth
restrictions, resource adequacy and other market specific requirements like
renewable portfolio standard (RPS) items? In addition, if utilizing the
services of a broker or third-party, what's the fee that the provider is paying
them? It’s just common sense that nothing is “free”. While at first glance a
higher priced supplier may include these components within the “fixed-price”, a
lower priced offer from another supplier may not. These added costs, called
“pass-thru’s”, should be broken out and accounted for by all parties when considering
the overall price you will eventually pay. Again, common sense says that if a
lower cost supplier’s price "looks too good to be true", it’s worth
your time to request disclosure of every price component (including third-party
fees and mark-ups, if any) to ensure you’re truly getting the best deal.
You need to be aware of, and in direct contact with all the
people in your organization whose approval and signature is need on the
contract. Oftentimes pricing quotes in energy deals are only good for a
matter of minutes or hours and expire at the end of the current day because the
markets are so volatile. In fact, the bigger the deal the smaller time window.
You’ll hate yourself if you sat on a quote for too long while getting approvals
only to find that the pricing was no longer valid by the time you faxed it
back. When your supplier says that “time is of the essence” he usually means it.
6. Develop proactive communication directly with the provider.