Workshop H. Effective Energy Procurement Strategy to Get the Best Risk-Adjusted Energy Prices. 1:45 p.m. to 3:00 p.m.

Transcription

1 Workshop H Effective Energy Procurement Strategy to Get the Best Risk-Adjusted Energy Prices 1:45 p.m. to 3:00 p.m.

2 Biographical Information Christopher Wiederspahn Vice President Business Development Amerex Energy Services 2507 Simon Drive, Reading, PA (o) (c) When it comes to deregulated energy procurement, Chris Wiederspahn has been there and done that. Over the past eighteen year Chris has helped many scores of organizations achieve bottom line results through strategic energy procurement and related services. Prior to his current position at Amerex, Chris was a consultant to utility holding company GPU, Inc. before becoming the Director of Sales and Marketing for their new unregulated subsidiary in the late 90s. After the sale of GPU to FirstEnergy, Chris was named to the merger team and then performed consulting work for FirstEnergy and the Department of Energy related to deregulation and the operation of wholesale power markets. He went on to hold key positions at some of the country s most prestigious energy procurement consulting firms and worked with dozens of the nation's largest end-users before joining Amerex Energy Services.

3 EFFECTIVE ENERGY PROCUREMENT STRATEGIES FOR CHANGING TIMES CHRIS WIEDERSPAHN VICE PRESIDENT, BUSINESSDEVELOPMENT SEPTEMBER 22, 2015

4 AGENDA About Amerex Market Snapshot/Changes Procurement Strategies Capacity in Ohio Outlook for 2016 Role of Consultant Questions? 2

5 ABOUT AMEREX

6 OUR SERVICES Energy Procurement & Price Risk Management Electricity & natural gas Strategy development and tactical execution Proactive, ongoing market intelligence Reporting and analyses Regulatory updates Competitive RFP process Data Management & Invoice Portal Online access to usage and cost information Invoice collection, audits, payments Reporting ENERGY STAR Sustainability and GHG City/state energy benchmarking requirements Demand Response Evaluation & Assessment Renewable Supply (solar, wind, RECs) Evaluation & Assessment Numerous awards 4

7 OUR HISTORY Amerex Brokers, LLC Founded: Brokered commodities: Heating oil Gasoline Fuel oil Amerex Energy Services (AES) Established: Formed to provide energy advisory services to end use retail clients Amerex purchased by GFI Group (NYSE: GFIG): 2,000 employees Serves 24,000 institutional clients including financial institutions, FERC, retail suppliers, & utilities in 12 countries AES acquired Houston based CETX Energy Agency: Increased Texas client base and added key team members AES acquired Philadelphia based Energy Choice Solutions: Increased Northeast and Mid Atlantic client base, expanded team footprint AES expands with new offices: Further enhanced Midwest and New England presence with new staff in CT, IL and OH BGC Partners, Inc. (NASDAQ: BGCP) purchases controlling interest in GFI: Creates strong diversified company well positioned for growth 5

8 OUR MARKETS 6

9 MARKET SNAPSHOT

10 OHIO/PJM CHANGES Gas to electric correlation Long term contracts Supplier Mix Capacity costs New CP product Coal retirements Infrastructure Winter is the new summer 8

11 NYMEX GAS/PJM AVERAGES Chart shows high correlation and summer to winter spike shift 9

12 MARKET OVERVIEW Robust Gas Supply 16 Bcf/d from Marcellus alone & growing Expanding shale based reservoir base Declining efficient installed capacity ROI insufficient to build new units less need for traditional reserve margins Demand Response is in the DNA Expanded EPA activity New suppliers Changing supplier relationships Gas Basis Critical in Certain Regions Re emergence of Hedge Funds and Volatility 10

13 CURRENT EVENTS Natural Gas Market Injection season is winding down; we are now nearly 4% above the 5 year average and 17% above last year $2 handle gas remains; first month above $3 is January 2016; first month above $4 is December 2023 National Market News PJM adopts an updated capacity model, adding a performance capacity attribute beginning PY16/17 EPA s Clean Power Plan to reduce emissions by 33% by 2030 SCOTUS reverses 2011 EPA ruling regarding mercury (and other air toxin) emissions from power plants

14 History Lesson 20 yr history of 12 month strips shows shift in market prices since 2008

15 NYMEX GAS/PJM AVERAGES Actual Upside downside based on 10 yr history 13

16 NYMEX GAS HISTORY/FUTURES Five year forward average is $3.15. There isn t an annual strip above $4 until 2025! 14

17 NYMEX NATURAL GAS SETTLEMENT PRICES 15

18 FIVE YEAR FORWARDS Five year forward strip is down $1.10 from a year ago. 16

19 CONTANGO PREMIUM ILLUSTRATION 17

20 A CALL ON THE MARKET 18

21 NATURAL GAS PRODUCTION Monthly natural gas production continues to increase year over year. 19

22 THE NEXT MARCELLUS THE UTICA Maybe, The NYMEX should move their pricing point from Henry Hub, LA to Pittsburgh, PA. WVU study estimates: Pittsburgh 782 Bcf & 1.96 Billion Barrels 20

23 A LOOK AT REAL TIME VS. FORWARDS 21

24 A LOOK AT REAL TIME VS. FORWARDS 22

25 PJM LMP VS. FORWARDS 23

26 WEATHER CENTER NOAA now forecasting a strong and long lasting El Nino. El Nino s usually bring: Wetter: Southern U.S. from California to the Carolinas then up parts of the East Coast Drier: Parts of the Ohio Valley, Great Lakes, Northwest and Northern Rockies Cooler: Desert Southwest, Southern Plains, northern Gulf Coast Warmer: Northern tier of states from the Pacific Northwest to the Northern Plains, Great Lakes, and Northeast Fewer Atlantic Hurricanes 24 July 19, 2015

27 WEATHER CENTER Coming weeks look to provide colder than normal weather in TX and warmer along the east coast and Pacific NW, meaning possible moderation in energy intensity. NOAA s Dec/Jan/Feb forecast calls for normal weather in the northeast, warmer along the upper tier and Pacific west, and cooler than normal throughout the south. 25

28 NATURAL GAS: GLOBAL PRICE COMPARISONS Federal Energy Regulatory Commission (August 2014) LNG pricing is at a very high multiple to domestic natural gas Adequate storage and robust production are insulating the U.S. from pricing risk 26

29 PROCUREMENT STRATEGIES

30 ENERGY PROCUREMENT BASICS ISSUES Markets Up Down Commodity Fixed Floating 28

31 PROCUREMENT STRATEGY ELEMENTS Risk tolerance/aversion Price vs. budget certainty Deregulated/regulated ratio Commercial/industrial Multiple/few facilities Corporate view of the future Term horizon Competition Centralized/Distributed decision making Energy important/critical Internal resources/knowledge Physically manage/inflexible Multiple/few decision makers Growth/stable Fiscal health Portfolio purview (all or just deregulated?) Definition of success 29

32 SAMPLE METRICS Performance versus utility default Performance versus prior contract Actual versus budget National Benchmark 826 or other Wholesale indices Fix/Float Position and Value at Risk Usage (Electric): kwh/widget/sf Supplier Diversification Contract Expiration Distribution 30

33 CUSTOMER RISKS Volume risk Market risk Operational risk Price risk Opportunity risk

34 PRODUCT OPTIONS RISK VS. REWARD Most Risk & Opportunity LMP (Real Time) Index Block & Index Heat Rate Fixed Price with Bandwidth Fixed Price with Full Swing Least Risk & Opportunity Real Time Market Prices Available to most clients Prices set real time & only known afterwards Volatile Relatively easy to manage Price spikes likely coincide with peak usage Can capture lower/avoid higher prices with load shifting Potentially low pricing over extended periods of time Portfolio Managed Strategy Available to mid to large clients Requires management Disaggregate components to allow wholesale purchasing dictated by market conditions May yield lower pricing than fixed prices if forward natural gas prices continue to drop Can provide budget forecasting via hedges and caps Fixed Price Not available for all clients Price certainty Set it and forget it Relatively easy Market near 10 year lows Probable savings against current rate (hero status) 32

35 ENERGY PROCUREMENT STRATEGIES

36 STRATEGIC PROCUREMENT All strategies follow market over time Timing is key and difficult Education overcomes fear Picking bottom means being open and indexed Consensus, planning and flexibility measure and adjust Goal: make a string of consistent and well-informed decisions Successful Procurement Allows the Buyer to: Mitigate Price Risk Capture Optionality Achieve Better Overall Value 34

37 CAPACITY IN OHIO

38 CAPACITY IN OHIO Separate from energy Second largest element next to energy Assigned by the EDC based on an account s Peak Load Share on system peak days (5CP) Flat charge 365 days year Re set every year Goes into effect 6/1 each year Ohio is located in the PJM Interconnection Varies by load factor Varies by utility zone Set three years ahead Capacity Performance impact Retail Electricity Example 36

39 LOAD FACTOR & UNIT RATES Comparison of two 750 kw peak demand customers Different load shapes yield different unit prices 37

40 CAPACITY IN OHIO Capacity prices for PJM Ohio for 6/13 to 5/2019 in $/MW Day Ohio capacity prices for 2016/17 and 2017/18 will be impacted by a change in law that establishes a requirement that 60% and 70% of Capacity be a Capacity Performance (CP) product. Suppliers may be able to pass through the additional charge.

41 CAPACITY IN OHIO $/MWh For Planning Years (6/1 to 5/31) Capacity has risen dramatically in Ohio since This graph shows $/MWh for capacity in various regions for a 50% load factor account ($10/MWh = 1 cent/kwh). 2018/2019 prices impacted by the new Capacity Performance (CP) product 39

42 CAPACITY PERFORMANCE IMPACT (OH) FirstEnergy $/MWh for 50% LF AEP/DPL/Duke 40 Change in Law

43 CAPACITY IN OHIO Capacity prices for contracts beginning in January for terms of 12, 24 or 36 months are illustrated here for a 50% load factor account. Based on current market conditions customers in FE territories will see decreases in quoted prices for longer terms based on capacity alone. Capacity $/MWh Over Different Contract Term Lengths 41

44 PJM CP HOURS Peaks usually occur on weekdays between 4pm and 7pm Months of July, August and September Data released in early October Minor adjustments can be made to both capacity assignment and price 42

45 OUTLOOK FOR 2016

46 ISSUES AND TRENDS Continued volatility Continued high gas production High end of injection season storage Regulatory activism Capacity Performance in PJM DR in PJM PPAs (AEP/FE) Political events (coal retirement, exports) El Nino Milder winter Wet south, Dry NE, Warmer North/NW

47 ISSUES AND TRENDS Congestion is culprit Electricity transmission system Gas pipeline Real time delivery of gas Traditional indexed contracts use local hubs Millions lost during past winters Infrastructure lagging Natural Gas Basis patterns changing Hub choice important Balancing provisions as well Solar Grid Parity

48 2016 STRATEGIC ASSUMPTIONS Continued low wholesale prices increase will come, but when? Forward markets exhibit higher prices further out but flatter than historically Continued volatility Congestion is the new fuel cost spike Capacity costs/change in law Regulatory costs rising Real time = real danger Some product evolution (ceiling product, heat rate, programmed) Move toward integration of EE, DR, DG, GHG, RTP, Renewables Solar grid parity Political landscape 46

49 ROLE OF CONSULTANT

50 WHY A CONSULTANT? Objective, informed resource Procurement not always this easy Rigorous shopping Eyes on the market Knowledge of product options Integration with EE, DR, RTP, Renewables, etc. Educational Support Validation of pass throughs, change in law Strategy setting and monitoring Which suppliers are competitive at any given moment Contracting expertise Knowledge of regulatory issues 48

51 SUMMARY Change is continuous Know your risk profile Set strategy and monitor Be market aware Best MW is one not used Integration is key to optimization Technology has arrived Seek professional help

52 QUESTIONS?

53 Visit amerexenergyservices.com 51

54 CONTACT INFORMATION Chris Wiederspahn Vice President, Business Development Amerex Energy Services 1 Sugar Creek Center Blvd, Suite 700 Sugar Land, Texas (o) (c) cwiederspahn@amerexenergy.com Chester Karchefsky Senior Director, Energy Consulting Amerex Energy Services Cleveland, OH Direct Fax ckarchefsky@amerexenergy.com 52