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Basic Generation Service Commercial and Industrial Energy Pricing Overview

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Agenda• Review the hourly Basic Generation Service

option (BGS-CIEP).• Explain the Retail Margin for Large BGS-FP and

BGS-CIEP customers.• Explain electric supply shopping options and

processes.• Provide a customer perspective of BGS-CIEP and

shopping• Provide you with opportunities to meet and

discuss your electric supply with Third Party Suppliers, BPU staff, PJM and the Office of Clean Energy.

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Electric Power Supply and Delivery Charges

• Electric Supply includes the costs for the generation of the electric power and any Transmission costs.

• Electric Delivery includes the costs for transporting the electricity within Conectiv’s service territory. Electric Delivery Costs remain fully regulated.

• Today we will be discussing BGS (Electric Delivery Company (EDC) provided Electric Supply).

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Basic Generation Service is the Electric Supply Product of the EDCs

• BGS is a regulated, default electric supply service available from the EDC.

• BGS is available for customers who do not choose a third party supplier.

• BGS is a completely optional service. Customers who choose a third-party supplier will still receive the same high level of service from Conectiv or any other EDC.

• Prices for BGS were obtained through an on-line auction and truly reflect a market-based rate.

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Conectiv’s Basic Generation Service Effective Beginning June 1st 2005

• The new BGS rates will be in effect from 6/1/05 through 5/31/06.• The BGS products are:

– A fixed-price product, Basic Generation Service – Fixed Price (BGS-FP). This rate is for residential and smaller industrial and commercial customers (less than 1250 kW peak load); and

– A variable priced product, Basic Generation Service – Commercial and Industrial Energy Pricing (BGS-CIEP). This rate is for larger industrial and commercial customers.

• Industrial and commercial customers with a peak load of greater than 750 kW who remain on BGS will also pay a retail margin charge of 0.5¢ per kWh.

• The remainder of the presentation will focus on the details of the variable, or hourly-priced product (BGS-CIEP).

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EDC Distribution Rate Classes with BGS-CIEP Default Supply Service

EDC BGS-CIEP Rate Classes Customers Included

PSE&G High-Tension Service – Transmission (HTS-HV) High-Tension Service – Subtransmission (HTS-S)Large Power and Light – Primary (LPL-P) Large Power and Light – Secondary (LPL-S)

AllAllAll

Greater than 1250 kW

AllAll

Greater than 1250 kWGreater than 1250 kW

AllGreater than 1250 kWGreater than 1250 kWGreater than 1250 kWGreater than 1250 kW

All

Greater than 1250 kW

JCP&L General Service Primary (GP) General Service Transmission (GT) General Service Secondary (GS)General Service Secondary Time-of-Day (GST)

ACECO Transmission General Service (TGS)Annual General Service Primary (AGS-Primary) Annual General Service Secondary (AGS-Secondary)Monthly General Service Primary (MGS-Primary)Monthly General Service Secondary (MGS-Secondary)

RECO Service Classification No. 7 – Primary TOU Service and Separately Metered Space Heating ServiceService Classification No. 2 – General Service

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Overview of Supply Components of the

Basic Generation Service-Commercial and Industrial

Energy Pricing (BGS-CIEP) Rate

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BGS-CIEP Rate Components – Terms*Prices through 5/05. Prices do not include NJ Sales Use Tax (SUT) or Losses where applicable.

BGS Supply

PJM Locational Marginal Price

(LMP) in EDC zone(hourly charge is posted under “Real Time LMP”

for Conectiv zone on www.PJM.com)

Default Supply Service Availability

Charge

Ancillary Services(charge based on PJM tariff)

Retail Margin(charge set by NJ BPU)

Generation Capacity(charge from BGS Auction)

Reconciliation

Customer will be billed the PJM price multiplied by the customer’s kWh usage in the concurrent hour. Price ranges from $0.00 per MWh to $1000 per MWh ($1.00 per kWh).

$0.005 per kWh

Per kWh charge -varies by voltage

$0.03976 per kW- day based on Generation ObligationVaries biannually (expected to be small)

$0.00 per kWh paid by all BSG-CIEP eligible customers

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BGS-CIEP Rate - Energy Components • Real-Time Energy Market or PJM LMP Price

– The PJM load weighted zonal average locational marginal price (LMP) is a real-time spot market price. The LMP is calculated at five-minute intervals.

– Customers on the BGS-CIEP rate will be billed the load-weighted hourly average price in the Conectiv zone, as posted by PJM multiplied by that customers kWh usage in the concurrent hour. Price ranges from $0.00 per MWh to $1000 per MWh ($1.00 per kWhr).

• Price is capped at $1000 per FERC rules (losses and sales tax are on top of this cap).

• Retail Margin ($0.005 per kWh)– Set by the Board of Public Utilities in NJ for all BGS-CIEP

customers.– Rate is the same for all EDCs.– Part of BGS-CIEP rate, so it is only charged to customers that stay

on BGS-CIEP.

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BGS-CIEP Rate - Energy Components (Continued)

• Ancillary Services Charge – For PJM administrative charges and;– Other generation-related items necessary for electric grid stability.– Charge is from a PJM Tariff.

• BGS Reconciliation Charges– Expected to be small. – Recovers the difference between monthly amount paid to BGS

suppliers and the total revenue received from BGS customers for the preceding months for the applicable BGS supply.

– Charge changes twice a year (June & October), and can be a positive or negative (e.g. a charge or a credit).

• BGS System Control Charge (SCC)– Recovers costs associated with Demand Response Programs.

• All Charges include sales and use tax (SUT).

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BGS-CIEP Rate – Capacity Components

• BGS Capacity Charges (Generation)– Charges per kilowatt of Generation Obligation.– The charge recovers customer’s allocated share of overall summer

peak load on PJM system.– Rate obtained through BGS Auction. It is the only component

BGS suppliers bid on.• Generation Obligation

– The total generation obligation is the amount of generation all PJM suppliers must have available to provide service to all customers on any day.

– It is based on the average of five (5) highest hours of PJM system load on 5 different days, as determined by PJM.

– Customers are allocated a pro-rata share that is based on their kW usage in those 5 hours.

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Overview of Hourly Pricing

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What are some effects of hourly pricing for Customers on BGS-CIEP ?

• Customers will need to understand their usage patterns.• Customers will see more hour-to-hour volatility in energy

price.– Daily price variability (usually higher in day than night).– Seasonal price variability (usually higher in summer than spring

and fall).– Price changes can occur quickly on days with limited supply (e.g.

hot summer days).

• Accrual accounting using historical costs or prior monthly averages becomes less reliable.

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Average Monthly PJM Spot Price for Electric Power in Conectiv Transmission Zone

Monthly Average Energy Price (LMP) in PJM for AE Transmission Zone January 2000 - December 2002

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On Peak Off Peak Avg

Notes: The Peak Period is 7:00 am – 11:00 pm Monday –Friday. Historical data is presented for informational purposesand may or may not be reflective of future energy prices

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Seasonal Energy Prices Typical Spring or Autumn and Hot Summer Day Profiles

PJM AE Zone LMP Variability Summer versus Spring and Fall

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PJM Price - Hot Summer Day (July 29, 2002) PJM Price - Typical Spring/Autumn Day (October 3, 2001)

Note: Historical data is presented for informational purposes and may or may not be reflective of future energy prices

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Customer Data Sources

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Data Sources – Historical Interval Data

• Customers can access their historical interval data on line free of charge through Conectiv’s “Energy Profiler Online” system.

•Registered Third Party Suppliers can also access historical customer data free of charge through Energy Profiler. However, Third Party Suppliers must have customer authorization to obtain historical data.

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• Information is available five days after meter reading• View demand and energy consumption• Information can be viewed graphically, in tabular form

or downloaded into a spreadsheet

Data Sources – Energy Profiler Online

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Data Sources – Energy Profiler Online

Graphical Tabular

Download

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Data Sources

Energy Profiler Online - some of the details ….Information is retained On-Line for 2 yearsData is not ‘bill-ready’ Service is provided free of chargeFor more information – see your Account Manager

Another option ….Data Pulses from your meter - see your Account Manager

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Data Sources – PJM datahttp://www.pjm.com > Energy Pricing> Daily Real Time LMP Data

Prices Scroll in Real time here.

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Data Sources – PJM data

Look for prior days data here

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Data Sources – PJM data

Each day of data here

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Data Sources – PJM dataHighlighted: PJM LMP Zonal Average for Conectiv Zone – for 2/20/04

Note: Conectiv is listed as AECO

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Energy Shopping Procedures

Conectiv Enrollment Process

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Conectiv Process for Enrolling with a Third-Party Supplier

• General rules and processes for Choice– Enrollment, switching, & drops– Billing/Payments

• Customer inquiries• Responsibilities of Customers • Responsibilities of Third Party Suppliers (TPS) • TPSs must be EDI certified & licensed with BPU

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Customer Enrollment

• Enrollment packet – TPS list & monthly historic usage - Can be obtained by calling 1-800-967-6800.

• Customer contracts with certified TPS– TPS retains contract

• TPS sends in an EDI enrollment transaction at least 20 days prior the meter reading date– Account level, all meters related to each account

number

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Customer Enrollment

• Verification is based on active account number– invalid account number will cause rejection of

the enrollment• A confirmation letter is sent to customer• Letter sent to account mailing address. If

none, then it is sent to the service address

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Customer Switching/Drop

• Switching between suppliers requires new enrollments to be received 20 days prior to the meter reading date– All switching restrictions removed

• Drops require a minimum of 15 days notice prior to the meter reading date

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Customer Billing

• Two customer billing options (Consolidated and Dual). TPS might not offer both– Consolidated

• Account must pass initial creditworthiness test.• One bill from Conectiv with both TPS and Conectiv

Delivery charges included.• TPS has 48 hours to return their charge to Conectiv.• TPS name, phone number, current charge,

adjustments, & total charge indicated.• Rolling page/logo option for TPS.

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Customer Payments

• Consolidated billing– Conectiv pays the TPS their total charge on the bill– Disputed charges must be discussed with the respective

party

• Customer must maintain a current payment history. Any arrears of 60 days will force the account to dual billing for minimum of 12 months

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Customer Billing/Payment

• Dual billing– Conectiv sends monthly usage data to TPS

• kW, kWhr, hourly data, etc.

– TPS calculates and mails their bill to the customer for their charges only

– Customer pays TPS– Disputes between TPS and EDC resolved by BPU.

• Inquiries regarding TPS charges will be referred to the TPS

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Third Party Supplier Introductions

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Customer Perspectives on Third Party Supply

John F. Kinkela - Lenox

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How to Shop for Energy

BPUBGS-CIEP Customer Education Seminar

2005 - 2006

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Choosing the Right Electricity ProductYour Operational Objectives Risk Profile

• Budget certainty

• Savings

• Conservation

• CIEP

• FP

• Integral to your business (direct expense)

• General business expense (overhead)

• Load shifting ability

• Term

• Product complexity

Understand your BGS rate

Understand Your Electricity Cost Drivers

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Electricity Products Available From The Utility

• BGS is the Only Product Option Available from the Utility(Business Customers Can Choose to Switch from FP to CIEP)

• For BGS-CIEP Tariff Accounts:– Energy: variable PJM hourly LMP– Generation Capacity: fixed by auction– Transmission Capacity: fixed by tariff– Ancillary Services: fixed by tariff– Retail Adder: fixed by BPU (0.5 cent/kWh)

– For BGS-FP Tariff Accounts:– Per kwh price charges set once-a-year– For 750 KW+ accounts, includes 0.5 cent/kWh Retail Adder

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For BGS-CIEP Accounts it is Never a Bad Time to Shop

• Shopping means that you are seeking competing offers from third party suppliers. You are not obligated to accept any offers or to switch off the utility tariff.

• Because of the current structure of the BGS-CIEP tariff, there is a very good likelihood that you will be able to achieve savings from a third party supplier as compared to the tariff price, regardless of market conditions. It is very much worth the effort at any time.

• Market conditions at the time of the bid can be very important, however, in deciding on the type of product you contract for andpotentially the term of the contract.

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A Third Party Supplier Can Offer a Variety of Product Options That Suit Your Needs–Fixed Price

•Price / Budget Certainty

•TPS bears market risk

•“Look Back” analysis vs. Floating Product. No assurance of savings vs. tariff

–Floating (Index) Price•Price / Budget Uncertainty

•Customer bears market risk

•Assured Savings vs. Utility BGS

–Block and Index Product or Other Combination Product•Combination Fixed and Floating

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Benchmarks to Evaluate Offers• Floating Price Product

– Energy would float and be a pass-through, like the BGS-CIEP tariff

– Compare supplier’s fixed charges to BGS-CIEP fixed components to determine savings

• Fixed Price Product– Historical Basis

• Customer Load• Recent PJM LMP Hourly Data• Value: Useful Tool / Not Basis for Decision

– Trigger Prices (subjective)• View of Market Using Forward Market Prices and Other Indices• Do NOT Assure Savings

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Some Considerations In Choosing A Product

FIXED PRICE BLOCK & INDEX TOTAL INDEX

Customer is in the market, but has no price certainty

Customer chooses how much of their load is in the market

Offers price certainty, but customer risks being out of the market

Total Index• Offers a rate structure based on the

hourly energy market, enabling customers to lower energy costs by managing energy usage in response to market price movements

• Designed for customers with variable loads, operational

Fixed Price• Provides electricity

supply at a fixed price per kWh throughout the term of the contract

• Designed for customers who have

flexibility and the ability to benefit from the option value of being in the market

a predictable load profile and prefer price certainty

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Calendar Year 2006 Forward Electric Price StripJuly 1, 2003 - March 14, 2005

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

7/1/03 1/24/04 8/18/04 3/13/05

Date

$/M

wh

Year 6 BGS Auction

Year 7 BGS Auction

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Pre-bid Planning

1. Nature of Operations (Usage Patterns)?– Seasonal or daily peaks vs. constant usage

2. On-site generation?

3. Plans for Expansion/Shut Down of facilities?– Timing

– Extent of change in usage

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Prebid Planning (2)

4. Credit History/Financial Security Issues

5. Budget/Cash Flow Issues

6. Management Tolerance for Risk

7. Management Decisionmaking Infrastructure

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Logistical Steps

• Obtain and compile historical usage information for account(s) in electronic format for distribution with bid specifications

• Determine target switch /contract start date, work back using 20-day minimum lead and some contingency time to target a date for accepting bids

• Set a date prior to acceptance of price bids for submission of proposed form of contract. Allow time for review of contract terms prior to acceptance/evaluation of bids. Final negotiation of terms and conditions can be left to post-bid.

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Logistical Steps (2)

• Develop a list of suppliers to receive bid specifications. Provide for healthy competition, yet keep to manageable number for evaluation and negotiation.

• Consider taking price offers from suppliers for more than one product, so you can compare what product fits best with your business philosophy.

• Put internal review/decision-making infrastructure in place ahead of time. Market prices are volatile and change rapidly; must be able to make timely decisions once bids are accepted.

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Logistical Steps (3)

• Provide for up-front legal review of standard terms and conditions to avoid protracted negotiations at back-end and/or to assure fair evaluation of bids and proper identification of optimal bids

• Review electric supplier worksheet in your packet. Develop bid specs and questions before taking bids.

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Evaluating Supplier ContractsContracts & allocation of risks

• Generally, is the contract clearly and fairly drafted taking into account the interests of both parties?

• How are the key risks allocated?– Changes in electricity prices– Material changes in facility operations– Facility closures / expansions– Excess or deficient usage

• What are the remedies in the event of a default?

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Summary Points

• BGS is a default service. Customers can choose to be supplied by a TPS.

• The BGS-CIEP rate varies from hour to hour in each day.

• Conectiv and the other EDCs will continue to provide the same high level of service. We are here to help make this next step in the transition to Energy Choice a success.

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Thank you for Attending

Please… Fill out your questionnaires.

Conectiv Representatives will be available in the front of the room to answer any additional questions you may have.

TPS Representatives are available to discuss their services with you.

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Additional Detailed Information on BGS-CIEP Rate

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Calculation of the Monthly Electric Power Supply Charge for Customers on BGS-CIEP

BGSBGS--CIEP Charge =CIEP Charge =

( )[ ] SUTDaysCapOblCapChg

SUTkWhRconRmlossesAnclosseskWhLMPPJMN

iii

×××

+×⎥⎦

⎤⎢⎣

⎡×++×+××−∑

=1))(()(

Where:PJM-LMPi = PJM-LMP Zonal price in given hr CapChg = Capacity Chargekwhi = Customer usage in given hour CapObl = Cust Capacity Obllosses = EDC specific Loss Factors SUT = Sales Tax Factor (1.06) Anc = EDC specific Ancillary Services Charge Days = # of days in monthRm = retail margin (0.5 cents)/kWh N = Number of hours in Billing PeriodRcon = Reconciliation ChargekWh = Monthly energy consumption

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Table of BGS-CIEP Charges for ConectivEnergy Charge Hourly PJM Energy Price in Conectiv

ZoneAncillary Services Transmission $0.003401/kWh

Subtransmission $0.003414/kWh Primary $0.003479/kWh Secondary $0.003585/kWh

Capacity Charge $0.0424/kW-dayLoss Factors Transmission 1.02951

Subtransmission 1.03381 Primary 1.05345 Secondary 1.08544

Reconciliation ChargeVaries during the yearRetail Margin $0.005327/kWhPrices include BPU Assessment & SUT

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BGS-CIEP Rate – Additional Information on Capacity Components

• BGS Capacity Charges – Charges per kilowatt of Generation Obligation– Rate obtained through BGS Auction. It is the only component BGS

suppliers bid on.– The charge recovers customer’s allocated share of overall summer peak

load on PJM system.– Effective January 1st each year with PJM scaling factor adjustment in May

• Generation Obligation– The total generation obligation is the amount of electric generation all

PJM suppliers must have available to provide service to all customers on any day.

– It is based on the average of Five (5) highest hours of PJM system load on 5 different days, as determined by PJM

– Customers are allocated a pro-rata share that is based on their kW usage on those 5 hours

– Actual hourly data kW demand used for BGS-CIEP customers