2016 Energy Industry Predictions

2016-energy-predictions-blog2015 has proven to be a very interesting and dynamic year in energy. Events large and small have had an economic impact both globally and locally across the country. A few notable highlights include this year being the hottest year on record, oil prices trading below $35 a barrel, and renewable energy possibly reaching a global tipping point.

I have spoken to many clients over the past couple of months inquiring about what 2016 has in store. The most frequent inquires I get pertain to what will happen with the markets, legislation, and regulations affecting how they will do business in the upcoming year.

I spent the better part of the fourth quarter researching and interviewing fellow industry experts to ascertain where the industry will go in 2016. Below are my energy industry predictions for 2016.

  • Nationally, the supply of natural gas is up compared to this time last year. The regional transmission grid (PJM) serving Ohio has announced it has adequate capacity to meet energy demands this winter. This winter is projected to be warmer than average. Taken collectively, this means businesses should expect energy prices in our region to trend lower and costs to be down this winter compared to last year.
  • After two consecutive summers of dramatically increasing electric rates, consumers in northeast Ohio can expect much better pricing during the summer of 2016. Many consumers wisely locked into longer two and three year fixed rate contracts over the past two years. For a large number of consumers, those contracts are expiring during the first half of 2016. Now is the time to explore new contract terms with your energy advisor.
  • LED lighting technology, efficiency, and pricing improved dramatically over the past year. Though there will continue to be improvements to the technology, it is unlikely the industry will achieve improved pricing at quite the same rate. Businesses that have been waiting to install LEDs until the market reaches a plateau on pricing, may want to consider 2016 as the year to make their move.
  • Contrary to popular belief, there are still incentives available for energy efficiency retrofits; you just need to know where to look. There is a very good likelihood that SB 310, which froze the energy portfolio standards in Ohio, will expire by the end of the year. That means businesses could expect a return of the rebates First Energy once offered. But large electric consumers still have incentives they can capitalize on in the form of an exemption to costly riders attached to their electric use. Businesses should consult their energy advisors to learn more.
  • Columbia Gas of Ohio customers will continue to have access to favorable rebates. Columbia provides service to a majority of counties throughout Ohio. Their rebate program is very comprehensive extending from residential to commercial and new construction.
  • President Obama’s Clean Power Plan will continue to foster dialogue and potential turmoil within the energy market. State lawmakers and utilities have cited that the plans objectives will prove prohibitively costly to plant operations. A number of states, including Ohio, have already filed suit against the EPA in court. Either way, the end result will affect energy markets.
  • The Federal Government passed, and signed into law, a $1.1 trillion budget and tax extenders bill at the end of 2015. Included was an extension of Section 179D in the tax code that allows for qualifying businesses to receive up to $1.80 per square foot in deductions for eligible energy efficiency projects.

The energy markets are historically too volatile to perfectly predict. One certainty though is those businesses that are prepared with a plan are better insulated against unexpected weather anomalies, global crises, and unforeseen regulations. Be sure to consult with your energy advisor about implementing a contingency to properly manage your energy portfolio in 2016!

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4 Proven Steps to Get the Best Electric Utility Rate

electric-utility-dealOhio’s SB3 deregulated the electric market in 1999, and by 2001, commercial and industrial businesses were able to select their own electric generation suppliers. However, by 2008, 90% of the market still acquired their generation from their utility directly. The intent behind deregulation was to increase competition through “shopping” and ultimately drive down pricing for the consumer.

Today, many businesses are seeing the benefit of shopping beyond their utility to service their electric generation. Despite this, most clients I work with haven’t fully taken advantage of the increased competitive landscape. In my experience, mid-market businesses shop similarly (if not identically) to the small commercial and residential markets. Mid-market businesses typically field offers from brokers and suppliers; evaluate a fixed rate option versus a variable rate option; and consider one, two or three year terms.

This method of shopping will certainly get a deal done, but leaves substantial savings on the table for larger energy intensive businesses. Let’s evaluate this concept further using two examples.

Example 1:  A local hardware store is in need of a new electric generation contract. They use 28,000 kWh annually and approach a broker about a potential deal. The broker fields a few offers in the market and returns with the best option. A two-year fixed rate deal at 6.85 cents per kWh. Over the course of the agreement, our hardware store owner will pay a total of $3,836 for their electric generation.

Perhaps if they had used an energy advisor, they may have saved 2/10 of a penny per kWh. That a savings of about $112 or nearly $5 per month. In truth, that’s probably not enough savings for our hardware store owner to fret over. Shopping on their own would likely work just as effectively. But for larger energy intensive businesses, the difference of a few tenths of a penny could be substantial.

Example 2: A mid-sized manufacturer that consumes 6 million kWh annually is looking for a new electric contract. The facility director for the plant approaches a broker and inquiries about what electric contract would be best for the business. The broker then evaluates a few options and returns with the best deal. As a larger user, the manufacturer has increased purchasing power. As such, they receive a more favorable rate of 6.55 cents per kWh for a two-year fixed rate contract. Over the term of the agreement, our manufacturer will pay $786,000.

However, had they utilized a knowledgeable energy advisor, they could conceivably have secured a deal that was 3/10 of a penny less per kWh. Over the course of a two-year agreement, that amounts to a savings of $36,000 or $1,500 per month. Almost all my clients would consider that a savings worth pursuing.

The logical question our manufacturer would now ask is how they can take advantage of that better pricing. Below are some helpful tips to get the best deal possible for your business’ unique energy portfolio.

  1. Explore shopping through an auction platform. Suppliers will offer only one price while brokers may provide two or three. On an auction platform, you have access to every potential supplier in the market bidding for your business.
  2. Most businesses choose between a fixed rate and variable rate option. Consider a blend of both, where you capitalize on rates when they are low while insulating yourself against potential market volatility.
  3. Do not wait to shop until a month or two prior to your existing contract expiration. The closer to expiration, the higher the pricing will be. Begin exploring options at least six month beforehand.
  4. Try to buy when pricing trends lower during the winter months. As demand declines during the cold season, so too does the pricing in the market.

Be sure to work with your energy advisor to understand the complexities of shopping for an electric contract and securing the best option for you and your business.

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Return to the 1990’s- FirstEnergy Monopoly is Wrong for Ohio

firstenergymonopolyOhio utilities are appealing to the Public Utility Commission of Ohio (PUCO) for a multi-billion dollar bailout in order to continue operating costly power plants at a profit. After a nearly seven year push by Ohio electricity utilities to secure profit guarantees for their power plants, a decision is close to reality. The deal will effectively create a monopoly for FirstEnergy and AEP to purchase electricity from their unregulated subsidiary power plants, at above market rates, and re-sell that power to consumers at a guaranteed profit.  FirstEnergy and AEP argue the deal is necessary to maintain grid reliability, additionally stating that these plants may otherwise close if this agreement does not occur. Both utilities further cite their inability to compete with newer gas-fired plants.

Who makes the decision?

According to a recent article in the Columbus Dispatch, FirstEnergy is working to finalize a revised 8-year agreement with PUCO staff. Earlier in September, PUCO staff rejected the original FirstEnergy proposal for a 15-year deal. Regardless of staff recommendations, the PUCO 5-member board has the authority to accept or reject any proposal.

What happens next?

FirstEnergy and AEP have concluded their trial-like hearings, following testimonies from several dozen parties over the last month. Currently, formal discussions are now in place to hash out the details and logistics of a revised agreement. Once completed, the PUCO will review the case and rule, which will likely occur sometime in early 2016. However, if there is a settlement, the process could conceivably be prolonged, and there will be another round of hearings to re-examine the benefits of the deal.

Why we agree with opponents

EPCO firmly believes this agreement will lead to higher commodity prices for consumers and ultimately prove harmful to the business community at-large. FirstEnergy invested heavily in coal at a time where natural gas prices plummeted. FirstEnergy is now looking to the consumer to bail them out of a bad bet. FirstEnergy should solely be held accountable for investment decisions that have failed to pay off.

Opposition to this newly proposed agreement has been swift and fierce. Opponents of the deal argue that a bailout of this nature only serves to benefit the utility companies’ at the expense of consumers. The claims made by the utilities of projected future consumer savings have been deemed as patently false.

In the 1990’s,  FirstEnergy worked to deregulate the energy market and were a key component in making that happen in 1999. During the next 8 years, FirstEnergy talked about how it “improved the productivity of its generating fleet by 27% and added about 1,600 megawatts of capacity, at no risk to the customer.”

When Ohio manufacturers wanted to re-regulate utilities in hopes of getting lower energy rates, FirstEnergy argued that, “flip-flopping between regulation and competitive markets whenever one offers a lower price than the other undermines the ability of utilities to make the investment decisions needed to maintain reliable and adequate service. And, if the basic rules of our industry are rewritten every eight years of so – irrespective of the long-term impact of doing so – major providers of capital won’t risk investing the billions of dollars it will take to meet Ohio’s energy needs in the years ahead”.

We do not want to return to monopolies

Now, FirstEnergy is working to re-regulate utilities, with the intent of becoming a subsidized and protected monopoly once again. FirstEnergy is struggling to compete in the regional electricity market. If the bailout doesn’t occur, FirstEnergy has spoken out saying it would support Ohio legislators overturning the deregulation legislation FirstEnergy once fought for in the 1990’s, which would in turn, make the company a monopoly protected from competition.

At EPCO, we believe that consumers, both large and small, should have the right to shop for a low competitive price on their electric generation. This proposed bailout amounts to nothing more than monopolies for FirstEnergy and AEP in their respective territories. The end result will be an increased cost of doing business that ultimately will adversely affect from business growth and development in Ohio.

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