Nodal - Are You Paying More for Your Electricity?
By JD Dodson
Texas' new wholesale power pricing model, known as Nodal, is four months into its tenure. Energy users who have not paid close attention to their invoices are probably not aware of how the change has affected them. Retailers have invoked a clause in their contract called, "Change of Law." This provision allows them to alter their pricing if government regulations are changed that effect their cost structure. This clause hasn't been used since the Texas market was deregulated in January 2002. That all changed with Nodal, which started in December of 2011. Consumers need to analyze their invoices, as there may have been several charges added.
Here is an example bill that shows what the new costs are being labeled:
As shown in the invoice above, there are two main charges that are being passed thru to the client. One is called basis and the other is RUC (reliability unit commitment.) RUC is noted in the bill as Nodal Ancillary Credit or Charge. Of the two, the basis charge has had a greater financial impact. This new cost represents a customer's contribution to congestion costs or the costs they contribute to managing the distribution of power across the grid. This cost used to be spread within each of the four large regions of the state, now it is being localized, so a client's costs are directly tied to their site's contribution to congestion. After four months, below is the average cost difference to what used to be the costs associated to the zone:
| Houston | North | South | West |
| $0.00009 | $0.00071 | $0.00554 | $0.00077 |
The only zone that has had a significant costs impact was the south zone, but note that the above costs represent an average. Every customer needs to understand how they have been directly affected. The first bill above represented an extreme rise in costs as the impact was two cents a kWH or a 10% increase on the bill. The bill below represents the exact opposite as the account had over a 10% credit. The first site was in a highly congested area in the South zone and the below location was in a remote area in West Texas.
The second piece of the Nodal cost structure is a term called RUC. RUC stands for Reliability Unit Commitment and it represents several pieces of our ancillary costs. Ancillary costs are costs associated with having generation available to help in balancing of the grid on an ongoing basis.
RUC ensures there is enough supply in the right locations to meet the forecasted load. The four RUC components are RUC Capacity Short Charge, RUC Make-Whole Uplift Charge, RUC Decommitment Charge and the RUC Clawback Charge. The first two charges are the most important components of RUC as they have the largest financial impact on the end user. If there is not enough forecasted generation to meet the scheduled load, ERCOT will directly assign the cost to the suppliers that created this shortage. This component is the RUC Capacity Short Charge. There is a cap in place limiting the amount each short supplier will have to pay. If the cost of the shortage has not been covered by the time the cap has been met, the remaining amount will be allocated evenly across all suppliers on a load ratio share basis. This is called the RUC Make-Whole Uplift Charge. The graph below shows a 100 MW shortage in the forecasted generation by the suppliers. The cost of this shortage is then charged back to the suppliers as described above. If the supplier passes through RUC on their contracts, the end use customer will incur the cost.
RPM advises our customers to track these new charges so you understand the impact to you. With summer coming soon, no one knows what these costs will look like during our peak demand months. If you have any questions, don't hesitate to call your Rapid Power Management energy manager for an explanation.
Texas Legislative Update
The Texas legislature meets every other year from the beginning of January through the end of May. This year the tone regarding energy legislature is dramatically different than in 2009 and 2007. During those legislative sessions, energy deregulation was heavily criticized because energy prices were significantly higher than they are now. Thus, legislatures were trying to appease their constituents who were suffering from higher costs. Private consumers felt cheated as prices were supposed to drop under deregulation. Please note that this was the general idea as deregulation promotes new technologies, thus more efficiency, and it also promotes competition. In truth, pricing will fluctuate based on natural gas prices as natural gas is the fuel that determines pricing within the wholesale market. The current legislative environment is much less turbulent but there are a couple of bills that are worth mentioning.
The bill below relates to Home Owner Associations' (HOA's) power of regulating solar installations. In states such as Florida, solar panels are ubiquitous as the benefit of using the sun to lower the energy bill is obvious. In Texas, HOAs has been a huge barrier in getting installations approved. If this bill passes it will be a big boost to the Texas solar market.
SB238 Relating to the regulation of solar energy devices by a property owner's association.
| Companions | HB 450 Lucio III (Identical) |
| 3-14-11 H Committee action pending House Business and Industry | |
| SB 302 Wentworth (Identical) | |
| 3-2-11 S Committee action pending Senate Intergovernmental Relations | |
| SB 477 Jackson, Mike (Identical) | |
| 3-2-11 Committee action pending Senate Intergovernmental Relations | |
| Bill History: 04-04-11 H Referred to House Committee on House Business and Industry |
The second bill (see below) has to do with the unfair charges that neighborhood ball fields face. They incur higher costs because they are charged based on their peak demand, or a demand ratchet. A demand ratchet is a peak usage moment, usually occurring during night games from the necessary lighting. The local delivery company charges customers based on the higher of either the previous month's peak demand or 80% of the peak demand over the last 11 months. So even though the average usage for a typical ball field is low, these users can end up paying a lot. As schools are facing big government cuts, this bill is gaining a lot of traction.
HB 362 Relating to the regulation by a property owners' association of the installation of solar energy devices and certain roofing materials on property.
Bill History: 04-20-11 S Referred to Senate Committee on Senate Intergovernmental Relations
For more information and to provide support for these bills, please visit the legislature's web-site:
http://www.capitol.state.tx.us/BillLookup/BillNumber.aspx
Hydraulic Fracturing Website Launched
As natural gas drilling has gained momentum and has moved close to populated areas, the process has come under increased investigation. In particular, the scrutiny is directed at the chemicals used in the process and how they might affect drinking water in the surrounding communities.
Hydraulic fracturing ("fracking") involves blasting water, sand and chemicals into a shale bed to fracture the shale and allow gas to escape. The technique made development of the Barnett Shale possible. Over 99% of the fluid used is composed of freshwater and sand. The remaining amount (less than 1%) is made up of special-purpose additives found in common consumer products, such as household cleaners, disinfectants and cosmetics.
In response to public concerns, a new website has been launched for natural gas developers to publish a well-by-well accounting of the chemicals they use in the natural gas recovery process. A joint project of the Ground Water Protection Council and Interstate Oil and Gas Compact Commission, the website is called the FracFocus Chemical Disclosure Registry and is active and available to the public at http://fracfocus.org/. The website is also designed to provide a centralized location for public information and education about natural gas recovery through the fracking process. Some of the companies participating in the voluntary registry are: Anadarko, Chesapeake, Devon, Apache, Pioneer Natural Resources and Southwestern Energy.
Many regard chemical disclosure by the developers as a critical step in the nation's ability to maximize the opportunity provided by our natural gas resources. Although there have been no documented cases of drinking water contamination related to fracking, recent media attention has increased the public perception of concern over the chemicals used in the process. The hope is that voluntary participation by industry leaders in the public education on the process and chemicals used, will dispel the perception of danger and secrecy.
RPM encourages our customers to visit the site and learn more about the process and become fully educated. Through education, we will all be able to have a rational discussion about how best to ensure safety measures are followed while maximizing the opportunity that our natural gas resources provide our nation.
For information regarding a potential break-thru in technology in handling the water pollutants used in fracking, please see the following link:
http://blogs.forbes.com/jeffmcmahon/2011/05/02/fracking-pollution-may-be-solved-doe-says/?partner=alerts
'TIS THE SEASON FOR SURGE PROTECTION!
You may not be able to prevent lightning from striking but you may be able to protect your business from lightning damage. According to Business Week, damage caused by surges in electrical systems equate to over $26 billion per year in lost time, equipment and equipment repair for US businesses. In this automated and computer driven world, protecting mission-critical electronic systems with surge suppression is a relatively inexpensive electrical system insurance policy.
While it is important to install surge protection at the service entrance to prevent damage from lightning, the truth is 80% of transients come from inside a facility due to equipment switching. Typical symptoms from these transients appear over time and include; cumulative damage, premature equipment failure, data losses and nuisance tripping of controls.
The truth of the matter is that to a business, the damage that an electrical surge is able to inflict could be crippling in a multitude of ways. In addition to the direct costs of equipment failure, businesses must also account for the indirect costs of lost productivity due to downtime of employees and the stoppage of phone, computer and network systems, as well as the potential for lost data. The good news is that the threat of incurring these catastrophic costs due to lightning damage is largely preventable.
Surge Protection Devices (SPD) equipment will protect your electrical, data and telecom equipment from the effects of lightning induced voltages, external switching transients and internally generated electrical transients. These effects range from panel board destruction damaged variable frequency drives, and data equipment failure.
The cost of surge protection can be small, compared to overall system cost and benefits in performance. Therefore, added quality and performance in surge protection may be chosen as a conservative engineering approach to compensate for unknown variables in the other parameters. This approach can provide excellent performance in the best interest of the user, while not significantly affecting overall system cost. Call Rapid Power Management at (469) 759-1450 to request a quote or visit www.rapidpower.net for more information.
MARKET UPDATE
The West Texas Intermediate crude oil spot prices in March 2011 averaged over $103 per barrel and reached up to $112 per barrel in early April. Crude oil prices are currently at their highest level since 2008. The U.S. Energy Information Administration expects oil markets to tighten over the next two years due to forecasted growth in world oil demand and slow growth of supply from non-OPEC countries.
The EIA expects the price of WTI crude oil to average about $106 per barrel in 2011 and an increased to $114 per barrel in 2012. OPEC is scheduled to meet on June 8th to discuss production targets. The EIA's expectations for OPEC production have decreased compared to last quarter due to the situation in Libya.
At the end of March 2011, natural gas working inventories were at 1.6 trillion cubic feet (Tcf), which is slightly below levels at the same time last year. In 2011, inventories are projected to stay relatively high throughout the year.
The Henry Hub spot price averaged $4.10 per MMBtu in 2011, which is $0.29 per MMBtu lower than the average for 2010. The EIA expects the natural gas market to tighten in 2012 with the projected Henry Hub natural gas spot price average of $4.55 per MMBtu.
The natural gas futures 12-month strip had a low at $4.16 in late February and a high of $4.95 in late January. Currently, the May contract is priced at $4.87 per MMBtu.
The GDP increased at an annual rate of 1.8 percent in the first quarter 2011 (January through March) after a real GDP increase of 3.1 percent in the fourth quarter of 2010. The GDP was slightly below the expected 2 percent growth by economists.
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased. The Bureau emphasized that the first-quarter advance estimate released April 29th is based on source data that are incomplete or subject to further revision by the source agency. The "second" estimate for the first quarter, based on more complete data, will be released on May 26, 2011.
The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports and a deceleration in PCE. Also, the decrease in government spending declined by them most since 1983. The Fed trimmed its 2011 annual GDP forecast to 3.1 percent from 3.3 percent just before the release of the first quarter GDP. The Fed's longer-term projection for inflation is a range of 1.7 percent to 2 percent. The rising oil and food costs may push up prices of other goods and services.
