Understanding Retail Electric Pricing
A little confused about purchasing electricity from someone other than your current LDC or still confused even though you have switched? Hopefully these newsletters will provide some insight into the retail energy market.
On any given day retailers prices may vary significantly, even when controls are put in place for product and term.
Having been the Director of Retail Pricing for Direct Energy and Manger of Retail Pricing for the former Select Energy (purchased by HESS) I can tell you there is a lot more to electric pricing than meets the eye. One of the most important aspects to consider is that suppliers are guessing (in a knowledgeable way) on what some of the cost components of a price are going to be in the future. Electric prices are part science , part art. As an example, a supplier may be providing you with a two year term price while only being able to know with some clarity what the cost of supply may be for the winter or summer in the second year of the term. This is why as a consumer you want to see as many supplier prices as possible. Depending on how a supplier has been performing relative to the market when purchasing electricity for its customers you might expect that supplier to be more or less cautious.
Retail electric pricing is an exercise in matching your electric consumption to the suppliers forecast of the wholesale cost of electricity. Think through the typical day for your business, early in the morning building systems, lighting, heating etc. begin to come on in preparation for the workday. As the day progresses, either production increases, heating or cooling needs increase and lighting comes on, fade during midday and then come back on as the sun begins to set. For most users this means that usage a parabola shape. Not surprisingly the hourly cost of electricity follows this same shape becoming more costly during the day and falling during the evening.
How your use matches up to that parabola determines how your business will differ from the average cost of the New England system.
So the suppliers task is difficult and given their outlook on monthly prices and their view of how costs can vary during the day you can see how one supplier may provide lower prices than the other and as views change the supplier with the formerly high price can become the supplier with the now lowest price.
These are some of the major causes of price variation but not the only causes and I would enjoy sharing this information with your business, or trade organization that you business belongs to. If you are looking for a speaker on energy issues, I would be happy to address your group.