Understanding Capacity Markets and PJM Energy Efficiency Rebates

There are two aspects of the electricity markets; energy and capacity. Energy is easy to understand (it’s the power that utility companies are paid to produce by their customers.) Capacity, on the other hand, is the not as well-known portion of the utility bill. It’s the charge levied to ensure enough electricity is being generated when people flip the switch.

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    In Ohio, the regional distribution grid is known as PJM. This is the organization that ensures enough power plants are on line to supply the region. How does PJM establish how much “capacity” will be needed and what the value of that should be? They hold an auction that provides compensation for the power plants for the power they will provide at some point in the future. One key aspect of this auction is there is no functional difference between a kilowatt of power from a power plant and a kilowatt of power from an efficiency program or demand response. So, for the purposes of the capacity auction, “power plant” refers to all these sources of kilowatts.

    PJM holds an auction based on projections for what electricity demand will be in three years. Power plants bid their kilowatts at the total cost of operation. This includes fuel, maintenance and remaining capital costs. The lowest costs are used first and they continue to include increasingly expensive kilowatts until they fulfill the “capacity” of electricity needed.

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    When the capacity is reached, the cost of that unit of electricity is called the Clearing Price and all the previous units receive that price. This means all the less expensive units of power, whether from wind, natural gas, nuclear, solar or energy efficiency, get paid that rate. Anything more expensive than the “Clearing Price” is not included in the capacity market and may not have buyers for the electricity it creates. Because energy efficiency counts the same as generated kilowatts and is frequently one of the lowest cost sources, PJM has an energy efficiency rebate program. This allows for the aggregation of many individual projects to get to the megawatt size and pays each project their portion of the clearing price.

    The capacity auction and PJM should now be a little bit more understandable. It should also help remind you that if you have or are planning on changing out lights and doing other energy efficiency upgrades, there are rebate dollars available to bring down the ROI and roll into your next projects.

    Contact the COSE Energy Team today via email at energy@cose.org or by phone at 216-592-2205 to learn more about the rebate dollars that could be available for your money-saving energy project.

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    Next up: Understanding Cuyahoga County's Clean Energy Financing Hub
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  • Understanding Cuyahoga County's Clean Energy Financing Hub

    In April, Cuyahoga County and COSE launched a program intended to aid businesses looking to complete energy projects: The Cuyahoga County Clean Energy Financing Hub.

    In April, Cuyahoga County and COSE launched a program intended to aid businesses looking to complete energy projects: The Cuyahoga County Clean Energy Financing Hub.

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    Working closely together, the two groups have developed and implemented a collaborative, public-private approach that delivers expert project implementation support and valuable financial solutions. The Hub helps bring private financing at competitive rates to building owners (small businesses, large commercial/industrial, local government, non-profit, and faith-based institutions) in Cuyahoga County for energy efficiency upgrades and solar projects. The goal is to finance project costs so the amount of energy you are saving or producing is greater than the costs you are spending on your upgrade.

    • The HUB can help identify energy saving projects through energy audits
    • The HUB will help outline financing options
    • The HUB will find lenders
    • The HUB will help measure savings
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    Small business owners might be thinking, “We don’t have the money to implement energy efficiency projects” but the Clean Energy Financing Hub is here to help you translate energy savings into “financial speak.” The math is simple. Cuyahoga County’s new financing hub is a great new resource.

    Questions? Contact the COSE Energy Team at 216-592-2205 or via email at energy@cose.org.

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    Next up: Untangling the Knots in Your Energy Contract’s Wording
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  • Untangling the Knots in Your Energy Contract’s Wording

    Does slogging through the wording in your energy contract give you a headache and make you feel like you need a law degree? Allow us to help clear some things up.

    Energy Contracts can be very confusing. Here are some tips on what to look for.

    1. What is the price you are being offered?  (Is it a fixed all in price?) 

    2. Is it a Variable Market Price?
     What is included in your price? (e.g., the cost of Energy and Transportation or the cost of energy only) 

    Here are some simple descriptions of what to look for:

    Price Options  
    There are two main price options: fixed rate and variable rate. While there are other options, the majority of customers fall into one of these two buckets. 

    • A fixed-rate option has the price you pay per kilowatt-hour locked in for the length of the contract.

    • A variable-rate option allows the price you pay to vary based on certain variables. 

    What is a True Fixed Price 
    A fixed price will remain the same for a set period of time. This will give you certainty that your price will not change during the term of the agreement. the only exception is if there is a “Change in Law” your supplier may opt to pass through a FERC (Federal Energy Regulatory Commission) approved price increase. If the FERC approves a price increase it is allowed to be passed through. 

    • A "fixed all-inclusive product" should contain all of the above components wrapped into one rate—your price. For this maximum price protection scenario, the price will contain a premium to cover the cost components that may vary over the duration of your service. This premium protects a supplier, who must estimate all of these changing cost components in order to provide you with an all-inclusive price for your desired term.

    • A "fixed product with varying pass-through charges" could include one or more of the above components wrapped into your fixed rate, and several others passed through separately. It could also mean that your energy component is fixed and all of the other charges are passed through at cost.

    A fixed price contract cannot contain a provision to routinely pass through cost components and must incorporate these costs into the fixed price at the start of your contract. However, if the methodology for determining the capacity price as approved by the FERC was changed during the contract, this could be considered a regulatory change and the incremental cost could be passed through as a line item assuming the contract had a regulatory- out clause that identifies capacity cost change as a potential pass through. (Capacity is the physical amount of electricity the utility has available to serve customers, in megawatts (MW) and is related to peak demand.)
    So, why would this not be considered a “variable” contract? It’s because the pass through is limited to the incremental cost or new cost caused by the regulatory change.

    Understanding Variable Contracts

    If you select a variable rate, the rate may change with market conditions. So, if market prices increase, your rate may increase. If market prices drop, your rate may decrease. Variable contracts are structured such that all (or some part) of the cost component (capacity, for example) is routinely passed through every billing cycle.

    Variable pass through component costs are the result of variable quantities or variable prices or quantity and price that creates a variable cost to the Supplier. This is passed directly to the retail buyer. For example, the capacity cost component of a customer’s price is the product of the kW quantity and the capacity price. 

    Variable contracts can be written in a number of different ways. A few examples:

    • Some contracts might pass through changes in the capacity price while keeping other obligations fixed. 

    • Contracts might fix the capacity price and pass through costs related to change in the annual capacity obligation. 

    • Still other contracts could pass through all capacity costs based on the specific wording in your contract. .

    • A fully variable contract would pass through all costs including the energy. The variable energy price could be based on an hourly index or some type of variable procurement methodology.

    There are a host of other things that could be written into a variable contract. Your energy consultant can explain these items and what impact they have on you.
     
    Engaging a reputable procurement consultant can help you avoid unpleasant, unexpected costs during the term of your contract. Allow the experts at the COSE/GCP Energy Team help you understand wording in your energy contract.


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    Next up: View from the Top: How 4 Area Leaders Set Expectations
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  • View from the Top: How 4 Area Leaders Set Expectations

    How 4 area leaders set expectations With a new year comes a fresh start—and a fresh set of expectations. But what’s the best way to think through what needs to get done? Four Northeast Ohio small business leaders explain.

    Can I grow another 10% or 20%?

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    That’s the question Steve Petti, president of New Image Media in Warrensville Heights, asks himself at the outset of every year. It’s likely also a similar question other small business owners are asking themselves around this time of year, too. But to achieve that growth, business owners first will need to get their priorities in order and what better time to do that than at the beginning of the year?

    Mind Your Business reached out to a selection of top small business owners and entrepreneurs to collect their thoughts on how to prioritize goals for the year so that ultimate goal—growth—is attainable. Here’s what they had to say.

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    Kimberly L. Jacobs, CEO, Kings Medical Group

    At the beginning of each year, Jacobs asks each of her team members to jot down the ideas they have for the next 12 months for their specific areas. Then, the team comes together to discuss everyone’s ideas.

    “We rate them on how much will it cost? How much will it generate? Is it achievable in 12 months? Will it require additional resources? Does it align with our corporate culture?” she says. Ideas that don’t meet those guidelines fall to the bottom of the list, meaning team members need to sell their ideas to the group if they want to see them implemented.

    “The vetted list, then, becomes our strategic vision for the next 12 months,” she adds.

    Jacobs is a big believer in transparency and that applies to setting goals. After the meeting, each of the goals set for the year is given a due date and the team keeps track of how far along they are to reaching the goal. Each of the ideas are revisited every quarter and can be adjusted if the organization’s thinking has changed.

    “A lot can change in 12 months and you don’t want someone working on a goal for the sake of working on a goal,” Jacobs says.

    Steve Petti, president, New Image Media

    Similar to Jacobs, Petti’s thinking around setting annual expectations for his business involve the process of actually writing them down. Seeing the goal in writing makes it more tangible and gives it more weight.

    Also similar to Kings Medical, New Image’s goals and expectations center around Petti’s efforts to build his business. “We made an aggressive commitment to grow,” he says.

    “We revised our vision statement and prominently posted it on our wall,” he adds. “Our vision is to be NEO’s most recognized name in video for business. We need to remind ourselves daily.”

    But saying he wants to grow is one thing. Actually achieving that growth is another. So, what is one action Petti intends to take during 2016 to help him achieve the growth goal he has set for himself?

    “Grow our audience,” Petti says. He has faith in his business model and wants to spread the word. A priority for him in 2016 is to get out and attend events—and build as many relationships as he can.

    Raquel Eatmon, CEO, Rising Media

    After Raquel Eatmon, CEO of Rising Media in Beachwood, has spent time reflecting on her goals for the upcoming year, she then starts the process of thinking about the best way to take action on the expectations she has set for herself.

    One important question that runs through her head is: “Do I need to ask for help?”

    In her former life as a TV news journalist, she became used to being able to wrap up a story at the end of the day into a tidy report. Such is not the case when it comes to business, as she has discovered.

    “I have to go easy on myself,” she says. Eatmon has found it best to pace herself and not get caught up in measuring herself against other CEOs. If she has to, she rolls items over if they need another day to complete.

    Lisa Stouffer, president and chief human resource consultant, Cephala Recruiting and Consulting

    If revenue growth is a goal for your company in 2016, then there is a good chance that staff growth is going to come into play, too. During a recent COSE webinar, Stouffer pointed to the growing numbers of the millennial generation as a potential source of that staff growth. Companies with growth in their sights should prioritize the hiring of this upcoming generation.

    And what’s the best way to attract these millennials? Millennials want to be treated as individuals, so that is a good place to start, she says.

    “Do you send out cold, auto-generated emails to applicants?” she asks. “Is it easy for them to check on their application? Is it easy for them to check the application on a mobile app?”

    Further, companies should begin drafting other changes to their hiring process. Three things small business owners can be doing right now to appeal to millennials include:

    • Communicate your purpose: Millennials want your company’s message to them to be genuine. Explain how prospective employees fit into your business’ architecture.
    • Put your culture out front: Show off your workplace on your company’s website. Think about including video testimonials from current employees. You want job applicants to be able to picture themselves working at your business.
    • Be proactive: Don’t wait weeks or months to get back in touch with applicants. Reach out as soon as possible. And once the candidate is onboard, consider instituting “stay interviews” to help identify what drives your employees. What’s their passion? What keeps them coming in everyday? “Use this feedback to enhance your company’s benefits and culture,” Stouffer says.

    Next Step

    Hiring millennials

    In a recent human resources report, PricewaterhouseCoopers identified several additional tactics employers should use if “hire staff” is one of the expectations they have set.

    • Provide flexibility: Give them the freedom to work in the environment that suits them best, even if it means that environment is the local coffee shop.
    • Enable growth: Put millennials on rotational assignments to give them a taste of many different parts of your business. Challenge them to come up with new ways to streamline processes.
    • Give feedback: Give honest feedback in real time. Don’t wait for annual review time.

    Want more? Additional resources for this story can be found online at www.cose.org/myb.

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    Next up: What Do 130 Techies Do In DC for Two Days
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  • What Do 130 Techies Do In DC for Two Days

    Begun in 2012, the Fly-In has grown from about 30 people to the recent 130, a pretty good testament to the growing tech voice at a national level. Joining me in DC for the two-day event was Dan McMullen, Partner with Calfee Halter and an OHTech board member. Associations like ours from around the country participated, literally from coast-to-coast. In fact, twenty-nine (29) states were represented by associations located therein. We’re proud to be the contingent representing Ohio.

    Earlier this week, OHTech joined 130 people from around the country for the 4th annual TechAmerica DC Fly-In.


    Begun in 2012, the Fly-In has grown from about 30 people to the recent 130, a pretty good testament to the growing tech voice at a national level.
    Joining me in DC for the two-day event was Dan McMullen, Partner with Calfee Halter and an OHTech board member. Associations like ours from around the country participated, literally from coast-to-coast. In fact, twenty-nine (29) states were represented by associations located therein. We’re proud to be the contingent representing Ohio.

    The intent of the Fly-In is to:
    • offer insight to associations and their member into legislative priorities; 
    • foster connections with legislators;
    • raise the profile of the tech industry;
    • advocate for a specific issue.

    We heard a day of presentations, spread between Tuesday afternoon and Wednesday morning from a variety of Representatives, Commissioners from the FTC and FCC, as well as several panel sessions on CyberSecurity, Immigration Reform and Broadband (access, government oversight, and of course, Net neutrality).

    Attendees fanned out across Capitol Hill on Wednesday, meeting with legislators to share their issues and offer support for a specific, national issue: passage of the Permanent Internet Tax Freedom Act

    On behalf of tech in Northeast Ohio, we’re very proud to be able to represent our members and other tech company’s. It’s really valuable for legislators to see us, hear our stories and get a better understanding of the importance of the industry and what its key challenges are.

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    Next up: What Does the Future of Tech Hold?
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  • What Does the Future of Tech Hold?

    Best of Tech award winners address off-the-radar issues no one in the tech industry is talking about right now, but will become a big deal in the next 12 months.


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