Lock Group Energy Consultant Explains Three Main Types of Rate Structures Geared for Deregulated Energy Savings

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Businesses wrestle with multiple choices for product varieties for electricity contracts. Duane Lock of the Lock Group energy experts explains the three choices.

The Lock Group has saved Texas businesses tens of millions of dollars

The Lock Group is led by Duane Lock, industry veteran of 17 years

The most popular electricity plan is the Fixed Rate plan, offered by most Retail Electric Providers. Fixed rates are rates that won't fluctuate during the term of the contract. The price protection is for the duration of the term of the agreement.

Typical flexible contract terms can be 6, 12, 24, 36, 48 or 60 months. However, at times an odd number of months such as 9, 15 or 32 can eliminate a higher priced energy season. The strategy is to bypass a hot summer as part of the term, thus generating energy savings.

Another popular energy selection is called Heat Rate, which enables a business to purchase electricity supply with a transparent, competitively priced rate that's linked to the natural gas market.

Energy Business Heat Rate products are designed to offer control over the pricing structure with the flexibility required to optimize electricity choices. Electricity usage profiles are analyzed and strategies can be recommended for securing the power supply.

Heat Rate products offer added risk management value. Rates can be converted from an index-based electricity price to a fixed price during the term to take advantage of a significant natural gas (NG) market downturn or mitigate the effects of a rising market.

Analysts can determine whether or not a Heat Rate is an advantageous choice by modeling load profiles and doing a series of projections and computations.

A third type of product is a more fully indexed product, formerly known as MCPE (Market Clearing Pricing for Energy). Today, ERCOT procures ancillary services (AS) on the day before the operating day to arrange for capacity.

Adequate capacity ensures that sufficient available energy exists to manage the grid for the next day. Now referred to as the Day Ahead Market, (DAM) provides an opportunity for parties to participate in a centralized market to optimize bilateral contracts and easily find other trading partners with available load or generation.

The DAM is a forward market, meaning transactions are delivered in the future – in ERCOT’s case, the next day. After real-time, a true-up process allows fulfillment of obligations between buyers and sellers.

In the Texas nodal market a daily DAM will operate to co-optimize Energy, AS capacity and Certain CRRs.

The primary purposes of DAM are to arrange for day-ahead energy and AS, to provide day-ahead price discovery and to provide day-ahead price certainty.

As always, a trusted energy advisor can analyze any commercial business situation and objectively determine which program or combination of programs would be a best fit.


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Kerrie Hammonds
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