An end-user wishing to buy electricity in the open market faces the following challenges:
- Electricity does not have a publicly traded futures market (unlike natural gas which is traded on the NYMEX), so tracking its prices is a challenge to property owners and managers.
- Electricity is priced separately for each building based on volume and consistency of usage (Load Factor).
- Electricity is traded in blocks of kW, and the price conversion from kW (measuring power [rate of use]) to kWh (measuring usage) is a mixture of art and science, varying from one supplier to another.
- Electricity pricing is affected by contractual clauses that define and assign risk factors: as more risk is placed on the end user, the up-front price per kWh falls, and vice versa. Be aware — in the end, it is quite possible that the lowest price per kWh will end up costing the most because of the contractual risks assigned to the end-user.
- Beyond the price of raw electricity, proposed prices may include any of the following: Line Losses, Transmission, Ancillary Services, Capacity, and some other federally or locally mandated charges. When comparing electricity prices among suppliers, one must be certain which components are included in each proposal. One must be extremely careful to ascertain that prices received from suppliers include the exact same components with similar contractual definitions.
Prospect Resources’ Layered Hedging considers all the above factors as well as the market prices in developing a customized, responsive, long term energy procurement strategy.