Everyone knows that energy prices in New England are quite high relative to other regions of the country. That is particularly true in Connecticut, where Artis Energy is based. Even though New England’s wholesale energy markets produce competitive prices that reflect suppliers’ costs, per ISO New England, the fact remains that fuel costs – most particularly natural gas which sets the price for wholesale electricity in our region — as well as the need for new power resources and improved transmission, remain key energy cost drivers. Both electricity and natural gas prices have seen dramatic swings in recent years (e.g., in 2012, natural gas prices hit a 10-year low; in the winter of 2015, the region saw some of its highest wholesale electricity prices since 2003), driven in large measure by an inadequate natural gas delivery infrastructure.
But there are other, less visible costs that can – and do — contribute mightily to higher bills for a range of accounts. These include capacity and demand charges. Let’s take a closer look.
Capacity
The capacity market in New England is designed to ensure that our electrical system has enough resources to meet future demand. This is done by paying resources to be available to meet energy requirements for three-years out. The prices are set by way of an auction. There have been multiple capacity auctions, and prices were initially kept low due to excess generating capacity in our region. But more recent auction results have yielded higher prices. For example, in Forward Capacity Auctions (FCA) 1 thru 6, the clearing prices ($/KW-Month) ranged from $ 2.95 to $ 4.50. For FCA 7, the NEMA (Northeast Massachusetts) load zone saw prices dramatically escalate to $ 14.99, while FCA 8 & 9 (which will take effect in 2017 – 2019), saw prices climb to as high as $ 9.95 system-wide. Facilities based in SEMA (Southeastern Massachusetts and Rhode Island) will pay higher still — $17.73 for new and $ 11.08 for existing resources. That is an astounding increase – from an average of less than $ 4 in the first few years of the capacity markets to now more than double that value.
At the retail level, capacity costs are imbedded in supply or generation charges. One supplier has stated that they could make up as much as 20% of a commercial, industrial or institutional account’s supply charges (per kWh). “Capacity tags” are unique per facility, and are determined based on how much energy the facility is using when the annual peak level of demand for the electric grid occurs. Therefore, it behooves facilities to manage against having their peak level of demand be concurrent with the region’s (more specifically, ISO New England’s). If a facility curtails load during key these peak hours, they can see significant cost reductions as a result of decreasing capacity tag charges. The solution is to know when, why and for what duration such levels of demand are occurring within a customer facility.
Demand
Demand charges reflect a key component of the delivery portion (as opposed to the supply or generation portion) of utility bills. Often, they are applied to both transmission and distribution, and they are designed to cover a utility’s fixed costs of delivering energy. If a facility uses a lot of power over short periods (that is, has variable loads), demand charges will likely comprise a large(r) portion of the bill. Demand charges are typically based on the highest 15- or 30-minute average usage recorded within a given month. Fact is, utilities have to maintain the infrastructure to deliver energy reliably, including during peak demand periods – plus a reserve. This capacity is extremely expensive to build and maintain, and demand charges help to cover those costs. (It should also be noted that utilities, in general, are seeking to assign more costs to fixed vs variable charges since future kWh sales may be flat or declining despite economic expansion.)
Demand charges in the northeast, with some exceptions, are quite high. For example, a Distribution Rate 030 account (small business) serviced by Eversource in Connecticut pays nearly $ 20 ($/KW-Month) for demand. So, with a modest, average monthly demand of, say 100 kW, that account would pay some $ 24,000 per year in demand charges alone! For time-of-use accounts, the costs of demand is much higher still. Indeed, for larger accounts, a demand ratchet applies, too, which means the customer will pay for a peak level of demand (even if it only occurs for only one hour) for many months or even as long as a year. It is not unusual for time-of-use accounts to pay demand charges in excess of $ 75,000 per year – or more. It is key to reduce demand during peak periods or to shift usage to avoid demand charges.
One can conclude that it is essential for customers to familiarize themselves with such charges and, frankly, all components of their utility bill – including supply and delivery. Artis Energy can not only explain all of the byzantine fees and charges associated with utility bills, but we can further identify solutions that can result in increased efficiency – and lower energy costs. Further, our real-time energy management platform, RTIS®, can provide further insight in this regard – from a facility perspective or even by individual assets or loads.