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Procurement Strategies and DR for Higher Education

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by

Jeff Barrie

on 18 October 2013

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Transcript of Procurement Strategies and DR for Higher Education

Energy Procurement Strategies and Demand Response Opportunities for Large Commercial Customers in the ComEd Zone
What is Demand Response?
Natural Gas
Regulatory Evolution
Natural Gas
Procurement

Electricity
Procurement

Demand
Response

Current structure of natural gas industry in the United States is the product of a long regulatory evolution.

A little history:

Mid 1800s – 1938
Natural gas production and the beginning of regulation
Municipal & state regulation (anti-monopoly)
1938
Natural Gas Act of 1938
Federal involvement in natural gas rates
Federal Power Commission (FPC)
Regulated Delivery Rates, but NOT wellhead rates
1954
Phillips Petroleum Co. v. Wisconsin
Supreme Court decision to regulate wellhead prices
Extreme drawbacks for the FPC
1978
National Gas Policy Act of 1978 (NGPA)
Abolished the FPC
Replaced by the Federal Energy Regulatory Commission (FERC)
Increased wellhead price ceilings (to encourage new production)
To be deregulated by 1985
1985
FERC Order No. 436
Voluntary unbundling of transportation and production purchases
1989
The Natural Gas Wellhead Decontrol Act of 1989 (NGWDA)
Amended NGPA and all regulated pricing was removed by 1/1/93
1992
FERC Order 636
Made unbundling a requirement
Requires efficient and reliable delivery

A Few Procurement
Strategies
Natural Gas Pricing and Production
Source: NaturalGas.org
Source: NaturalGas.org
Fixed Price Procurement





Advantages:
Ex: Lock in 1-5 year fixed price
Promotes budget certainty
Easy to compare responses
Gas banking potential
Source: Hess Energy



Disadvantages:
Risk of market price
reduction in future
Presently, front-end pricing
will be above spot pricing
Market/Index and NYMEX Plus Basis Procurement

Advantages:
Can capture future falling
gas prices
Basis lock fixes
transportation costs
Source: Hess Energy
Disadvantages:
Subject to market price volatility - high risk
Level of involvement high

Financial Instrument Example - Price Cap

Advantages:
Protects against upside risk with max cap price
Allows capture of lower market pricing
Option to fix at lower price
Source: Hess Energy
Disadvantages:
Premium to fix cap
Longer term and lower cap means larger premium
Some Hybrid Strategies

These strategies lock in portions of gas at varying volumes and time intervals.

Dollar-Cost-Averaging
(Purchase equal
monetary
amounts over time)

Laddered Portfolio Procurement
(Purchase calculated
volumes
over time)
Source: Hess Energy
Electricity Regulation,
Evolution
Futures market utilized to price commodity
Demand Response Defined

Demand response (also known as load response) is end-use customers reducing their use of electricity in response to power grid needs, economic signals from a competitive wholesale market or special retail rates.

End users will be compensated for their participation.

Capacity Charge

On your monthly electric bill there is a capacity charge line item derived from a previous period of peak demand. Some of these costs can be captured and returned to the owner through demand response programs.
Evolution of Electric Generation, Transmission,
and Distribution Regulation.

1920, 1935-1938
Federal Power Act
Originally to coordinate hydroelectric projects
Established the Federal Power Commission (FPC)
Regulated sale and transportation of electricity
1935
Public Utility Holding Company Act (PUHCA)
Regulated utility companies to operate in single state, subject to state regulation
Electricity supply is still regulated similarly today
1977
FPC reorganized, renamed Federal Energy Regulatory Commission (FERC)
1978
Public Utility Regulatory Policies Act (PURPA)
Utilities must buy energy from more efficient producers if less costly than their own
First step towards allowing competition
1992
Energy Policy Act (EPACT)
Removed some of PUHCA and forced government to open up wholesale electricity market to competition
Allowed alternative electric suppliers to use transmission system
Federal deregulation now permitted but implementation left up to states
1996-1999
FERC orders 888 and 2000
Clarified access for alternative electricity suppliers and defined Regional Transmission Organizations (RTOs)
Stronger RTOs mean increased deregulation
2005
EPACT 2005
Repealed PUHCA and modified Federal Power Act, Natural Gas Act, and PURPA
Enhanced deregulation
2007-2008
FERC orders 890 and 719
Further reduced discrimination and increased competition in wholesale market




Illinois Deregulation
1997-2002
Illinois legislature implements deregulation at the state level

Electricity Pricing
Procurement Strategies
Advantages:
Ex: 1 - 5 year fixed price
Promotes budget certainty
Apples-to-apples comparison
Source: GVS Energy



Disadvantages:
Risk of market price
reduction in future
Presently, front-end pricing
will be above spot pricing
Real Time Pricing Contract



Advantages:
Can capture falling market prices
Advantageous if end-user can shift load
Source: GVS Energy

Disadvantages:
Vulnerable to market price
spikes
High level of risk
Budget uncertainty
Hybrid Fixed/Real Time Contract




Advantages:
Locks in a portion of electricity load
Allows for some participation in the real time market
Energy usage can be curtailed during peak load and pricing periods
Source: GVS Energy


Disadvantages:
Reduced participation in a declining price market
Some risk involved in real time balance of load
Energy purchase contract at real time or spot prices
By RFP or Reverse Auction

Energy purchase contract at a fixed price. This can be one price or split into peak / off-peak for example.
Contract to purchase a base block at a fixed price and remainder of load at real time pricing.
Self Generated Electricity
Electric generation or combined heat and power (Cogeneration) can provide benefits to budget, reliability, and carbon footprint.
Demand Response Options
Demand Response for Illinois ComEd Zone, PJM RTO



Demand Response participation can be obtained by various methods, including:
Load Shedding
Turning off non-essential or dimming lighting
Fan setbacks
VFD reductions
Chiller setpoint changes

On-site electric generation
Emergency generators
Cogeneration (CHP) systems

Participation
End-use customers paticipate via Curtailment Service Providers (CSPs) acting as agents for their customers
Why Demand Response?



Peak electrical demand in all areas of all connected load cannot be met
Instead of installing large generators to supply the periodic peaks, this program reduces load on the demand side
This is less costly than installing significant supply infrastructure that will only be needed during peak times
Options for Demand Response Participation

Demand Response Emergency Capacity Market
Source: PJM
Participation is required to receive full benefit
Non-compliance will result in reduced benefit or possible out-of-pocket costs
Economic Load Response Market
CSPs have programs with varying requirements
Based on recent historical demand
Non-participation can incur penalties
Synchronous Reserve Market
Program aimed at quick-response, short-duration participants
Requires advanced metering
Non-participation can incur penalties
Source: Comverge
Source: Comverge
Source: Comverge
Frequency Regulation
Program aimed at instant-response, short-duration participants
Requires advanced metering
Non-participation can incur penalties
Source: Comverge
Questions / Discussion
(a not really that smart grid)
By Request for Proposal (RFP)
By Reverse Auction
Fixed Price or Load Following Procurement
Full transcript