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Utility Prices: Competitive Suppliers and Regulated Utilities

 

Electric Supply RatesFor individuals managing electric and gas supply for their respective organizations, it is important to consider the energy rates offered by regulated utilities when devising an energy management and procurement strategy. Deregulation was generally an effort to allow third-party suppliers to compete in a “free-market” and offer lower prices than regulated utilities. In many instances, deregulation had the desired effect. In doing so, however, it has also forced regulated utilities to offer increasingly competitive rates for power and gas. Given that pricing structures vary between states and utilities, it is difficult to draw overall conclusions about the attributes of utility pricing. However, a primary detriment for many utility pricing structures is the lack of insight into future pricing. For those utilities that set rates for commercial and industrial customers (as opposed to those utilities that price all C&I customers at the real-time rate), prices are generally not published more than 2 or 3 months in advance. As a result, significant price fluctuations are possible with little warning. For example, National Grid recently released electric supply rates for medium and large general service customers in Massachusetts for November, 2011 through January, 2012. This recent release is notable given the significant increase in prices for December and January. Prices for December and January represent 15% and 30% increases over the average supply price for the trailing 12-months and an average of 12% over the same months 1 year ago. These increases illustrate the benefit of being able to proactively hedge near-term exposure. In addition, regulated utilities generally have the ability to re-coup losses that they may have experienced had they offered below market rates in the past. Given the need to be competitive in the market, competitive suppliers do not have the same flexibility, providing an advantage to the end consumer. Nevertheless, end-users should consider all opportunities for supply – from both competitive suppliers and regulated utilities. Given the localized nature of these markets and the rules that govern them, it is important to seek out the advice of experts who understand the interaction between the competitive and regulated power and gas markets.