Increases In Capacity Set To Drive Up Energy Prices

Discover the 3 Proven Methods to Protect Your Business From These Increases

On June 1^st 2015, Energy consumers in Ohio, Pennsylvania, Illinois, Maryland and New Jersey are set to see increases in capacity. In Ohio, customers will see their capacity costs increase by more than 941% over 2013 levels. This will result in an increase for the average Ohio business of 2.26 cents per kwh. These increases will result in certain businesses actually paying more for capacity than the cost of the electricity they consume.

Image source: EIA.Gov

What is Capacity?

Capacity is a cost that all commercial accounts pay to adequately meet peak demand. In theory, this means that if every commercial account needs their peak amount of energy, there will not be rolling brown outs. Capacity prices are set through auctions every May, 3 years in advance.

Why Is This Happening?

Due to new EPA regulations, there are a handful of coal fired generation plants that are scheduled to close. This directly impacts the availability of capacity in this region. The largest effect will be felt by customers serviced by the First Energy Utility Companies.

The actual impact of these increases depend on the end users location, rate class and load factor. A load factor is the ratio between the actual consumption (kwh) and the maximum power (demand) over a certain period of time. The lower the load factor, the greater the impact of increased cost. This will result in the average small to medium business to take the brunt of these costs.

How Can You Minimize These Increases?

While these prices have been set, and there is no avoiding them coming to fruition, there are ways that business owners can mitigate the impact to their companies.

1. Hedge Your Energy Costs With a Retail Electric Supplier
   By receiving your required allotment of electricity from an alternative electricity provider, you can negotiate the overall cost of your electricity. Although this will not reduce your capacity cost, it can reduce your cost for the actual energy you consume. You also can socialize your cost increase over a longer period of time with a supplier, which will spread out the increase over a longer period of time.
2. Put Energy Efficiency Measures in Place
   By creating a plan to become more energy efficient, you can reduce your overall need for electricity during peak periods. This can directly result in a lower capacity obligation. With many new options available to customers, this may be a viable option for many businesses.
3. Put a Demand Response Program in Place
   Demand Response, is a program that compensates electricity customers who can voluntarily reduce their consumption during peak periods. This is not an option for all customers, but can reduce overall energy costs, and also become another revenue stream

How To Identify Which Options Are Best For Your Business:

Although all 3 of the above options are solid ways to minimize the impact of capacity increases this summer, implementing the wrong type of one of these programs can result in having no impact to your capacity costs. The only way to ensure that these options work effectively for your organization, is to have a detailed energy strategy in place.

North American Energy Advisory specialize in creating an energy strategy based on your company’s individual energy profile. We access all the factors that represent how you use energy. We take into account how much energy you use, when you use it, and what other factors will have an impact. This include things such as rate class, hours of operation and seasonality changes.

To receive more information on exactly how capacity increases will affect your business, and to start on creating your free personalized energy strategy, contact one of our senior energy advisors today at 1.800.920.4631.

Matt Helland
Sr. VP of Client Relations

Sources:

Chicago Tribune
EIA.gov
PUC of Ohio