The $200,000 + Risk In Your Next Electricity Contract : Electricity Buyer Today
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The $200,000 + Risk In Your Next Electricity Contract

by Joe Quenet on 05/29/13

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They say "a picture is worth a thousand words".  At TEPS we think the picture above is worth a few hundred thousand dollars  too.    

   When it comes to energy procurement, you can’t have it all: guaranteed continuous lowest pricing and absolute budget certainty. While an energy budget can play a useful role in forecasting cost, anticipating future energy expenses goes beyond just applying a blanket percentage increase to current costs. Instead, effective budgets take into account information about market volatility, operational changes and forcasted rate increases.
 
    Today, few commodities can match the complexity of issues and price volatility of the energy markets, making it difficult to feel confident that you're making the right choice at the right time for your business. While current cost is certainly important, the predictability of future costs and their impact on your next budget is probably even more important.  Based on the chart above we will attempt to show you what we consider to be the risks and rewards a company takes by not locking in future needs given today’s historically low prices.  

    As we head into this summer, rising natural gas prices (used to fuel the majority of power plants)  and concerns about electricity resource adequacy (tight operating reserves) continue to plague the Texas electricity market. In our opinion, from an energy risk management perspective, end users still exposed to future electricity needs beyond their current contracts should consider locking in a fixed-price product as soon as possible. 

  According to the summer 2013 Final Seasonal Assessment of Resource Adequacy Report (SARA) issued by the Electric Reliability Council of Texas (ERCOT) on May 1, 2013, there is a “significant chance that ERCOT will need to declare an Energy Emergency Alert (EEA) during the summer of 2013 and issue corresponding public appeals for conservation.
  
 With the projections of a hotter summer in 2013 and increased price caps in the Texas markets to $5,000/MWh effective June 1st, it is our opinion that any exposure to future needs should be immediately locked up. "If" ERCOT experiences a summer like 2011, the price of energy could spike up to $5/kWh  for over fifty 15 minute intervals.  Even if the new price cap is hit only half as many times as it was in 2011, such an outcome would immediately be reflected in future electricity rate offerings and thereby destroy an energy budget for years to come.
 
 Even if we're wrong, with today’s natural gas prices at around  $4.00 still considered “cheap” by historical standards, and the futures price currently pointed toward the $6.00 range, the reward of waiting until your current electricity  contract expires to lock in your company’s future energy needs is simply not worth the risk.  

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 For further information about Texas Energy Procurement Services and how we can help your business with it’s energy procurement needs please visit our website at www.TexasEPS.com or visit our blog at  Electricity Buyer Today for updated market commentary, opinions and strategy suggestions designed to help you stay ahead of the competition.

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