Transcript CUSTOM ACCOUNTS MARKETING PLAN PRESENTATION …

The Experimental Market
Valued Energy Reduction
Service (MVER) Rider for
Arkansas and Louisiana
2005 update
Page 1
Presentation Contents

Background

Market Valued Energy Reduction
(Schedule MVER)

Market Valued Call Option (MVCO) Service

Market Valued Energy (MVE) Service

Sources of Information
Page 2
Background

An airline has oversold a flight by five seats

Passengers with “firm” reservations can not be
bumped against their will provided they have
checked in prior to 10 minutes before departure

The airline has made a conscious decision to
meet high demand despite having a fixed supply
of seats available on the plane

Given the high demand, the airline has most
likely sold those last few seats to business
travelers at higher than average fares
Page 3
Background

Potential solutions
1.
2.
3.
4.
5.
Request another plane to take the five passengers
Have their maintenance crew add five more seats to the plane
Randomly draw five names and not let those passengers board
Not sell those last five tickets
Provide a financial incentive to five customers with time
flexibility in return for them volunteering to give up their seats

By choosing Option 5, the airline has met the
objective of fulfilling its demand given a fixed
supply and has done so at the lowest total cost

Customers that volunteer to give up their seats
are happy as are those that retain their seats and
fly to their destination
Page 4
Background

How does the airline analogy fit?
– First, our motive is not to generate profit, but to lower the total
delivered cost of power to our customers
– Entergy uses both generation and purchased power to meet our
customer’s energy needs on a real-time basis
– We have no control over real-time customer demand and are
subject to generation and purchased power supply constraints
– There is a very strong correlation between high real-time
customer demand and when resources are scare in the market
– The wholesale power market’s response to scarce supply is to
price available power at high prices
– Going back to the airline analogy, our options have been
historically limited to the first three choices
– MVER creates the opportunity to pay participating customers to
reduce their energy consumption when resources are needed,
hopefully displacing higher cost alternatives
Page 5
Background
1998 & 1999 Into Entergy Energy Prices*
Energy Price for Firm 16-hour Block of Power

$10,000
$1,000
1999
$100
1998
$10
1
10
19
28
37
46
55
64
73
82
Highest to Lowest Business Day of the Summer
*
Represents firm delivery of a 16-hour (6 a.m. - 10 p.m.) block of power scheduled “day ahead”
Page 6
Background

Is your site(s) a good candidate for MVER?
–
–
–
–
–
Do I meet the applicability section in the rider?
Do I have (1) discretionary load that can be shed with one-day
notice, (2) a back-up diesel or gas-fired generator(s)* or (3) a
load management system in place today?
Would anything prevent me from using this equipment/capability
for 50 – 150 hours this upcoming year?
What is the total variable cost per hour (or per curtailment) that
our site(s) would incur by participating in any of the programs
(e.g., fuel, labor, upgraded metering, inventory)?
Does the potential economic benefit from participation outweigh
the associated cost?
*
Note that Entergy is not purchasing power via a physical interconnection.
Page 7
Schedule MVER

Two unique options under MVER
Market Valued
Energy Reduction
Market Valued Call Option (MVCO) Service
Market Valued Energy (MVE) Service
Participants bid prior to the summer
for a specific “package” of curtailments
Participants bid “day ahead” for a
curtailment on the following day
Bid will be compared against options to
purchase similar power from other
utilities as well as independent power
producers
Bid will be compared against options
to purchase day ahead power from
other utilities as well as independent
power producers
Page 8
Schedule MVER

Criteria to participate
–
–
–
Participants must deliver at least 1 MW of curtailable load at
each participating site*
Appropriate metering must be in place for monitoring and
verification of hourly load data
A customer may participate in MVER via:


–
–
Submitting a successful bid under MVCO by March 31
Signing an enabling agreement under MVE prior to daily bidding
The same load can not be served under another interruptible
tariff and MVER simultaneously
A customer can participate in both MVER programs, but the
same load can not be in both simultaneously
*
Under MVCO, sites that can provide  500 KW of curtailable load
may aggregate within the same jurisdiction as long as at least 1 MW
total is provided. Under MVE, each site is treated independently and
must be able to deliver  1 MW of curtailable load.
Page 9
Schedule MVER

Additional program features
–
–
–
–
–
MVER runs year-round for MVE; May - September for MVCO
Payments made under MVER will appear as credits on your
May - September energy bills
There is no “buy-through” provision under either program (i.e.,
once a bid has been accepted, you have obligated your site to
curtail when called upon)
Once a bid has been accepted, if a curtailment is called for, but
not provided for some reason, a penalty will apply
Penalty provisions are unique to each program. In general,
participating customers must deliver at least 80% of the
promised load curtailment to begin receiving economic value
(please refer to the rider language for more information)
Page 10
MVCO Service

MVCO = Market Valued Call Option
–
–
–
You would sell Entergy the right, but not the obligation, to
purchase a curtailment in the future at a specific energy price for
a predetermined number of occurrences for each summer month
In return for selling Entergy this right, you will receive (1) a Call
Option Premium each of the five summer months and (2) an
energy payment tied to each curtailment
Standard features of MVCO






Curtailments will be for 8 hours only and can be any day of the week
Curtailments run from noon - 8 p.m. with either “day ahead” notice
(4 p.m.) or “same day” notice (10 a.m.) at the customer’s option
Cap of 2 days/month in May/June/Sept and 5 days/month in
July/Aug
Total potential for 16 curtailments across the five summer months (16
curtailments x 8 hours each = 128 hours total)
May/June/September energy price of $50/MWH
July/August energy price of $100/MWH
Page 11
MVCO Service

*
Call option price is shown for
illustrative purposes only!
How does MVCO work?
– Step 1 -- You submit a bid between Mar 1 - Mar 31 (bid includes
applicable site(s), Call Option Premium, MVCO Firm Demand and an
estimate of curtailable load)
– Step 2 -- If the bid is accepted (mid April), you will be required to sign
an MVCO contract prior to May 1. During the summer, you will
receive the Call Option Premium bid as a credit on your May September energy bills (e.g., Call Option Premium bid of $2,500/MWmonth* and load of 5 MW each month = $12,500 credit per month for
each summer month)
– Step 3 -- If a curtailment is called for, you will also receive a credit tied
to curtailable demand multiplied by the appropriate energy price (e.g.,
8 hours with curtailable demand of 5 MW and an energy price of
$100/MWH = $4,000 credit)
– Step 4 -- Total credit per month equals Call Option Premium and sum
of the credits from each 8-hour curtailment (customer is only
guaranteed to receive the Call Option Premium)
Page 12
MVCO Service

Advantages of MVCO
–
–
–

More Certainty -- Successful bidders will receive their Call
Option Premium bid and will also know up-front exactly what
energy prices will be paid for any curtailments
Aggregation* -- Allows sites to be aggregated, which may appeal
to certain types of customers who operate multiple eligible sites
Minimal Credit Loss for Load Volatility -- Credits for both the
Call Option Premium and the energy payments are tied to the
highest 8-hour average demand (from noon - 8 p.m.) during that
particular calendar month
Disadvantages of MVCO
–
Less Control -- Your site(s) will be obligated to curtail when
called upon with day ahead/same day notice
* Must provide at least 500 KW of curtailable demand at each site and a
minimum of 1 MW total across all sites.
Page 13
MVCO Service

Aggregated sites
Company aggregates three sites under
MVCO and bids to curtail to a net
firm demand of 5.0 MW. It doesn’t
matter which sites curtail as long as
net demand during a curtailment
is below the firm demand of 5.0 MW.
Highest
Maximum Concurrent
Demand
Demand
Site
(kW)
(kW)
A
9,000
5,000
B
7,000
3,000
C
4,000
2,000
20,000
10,000
Page 14
MVCO Service

*
Call option price is shown for
illustrative purposes only!
How is MVCO credit calculated?
Total Load (MW)
Call Option Premium Payment
(5.113 MW)($2,500/MW-month)*
= $12,782.50
Curtailable Billing Energy Credit
(5.113 MW)(8 hrs)($100/MWH)(5 days)
= $20,452.00
Total Credit for July
= $33,234.50
 $163/MWH
Example Data for July
MVCO Firm Contract Demand = 5.000 MW
Curtailable Demand = 5.113 MW
(based on highest 8-hour average aggregated
demand between noon - 8 p.m. occurring during
that particular calendar month)
Assume five (5) curtailments are requested and that
sites reduce to 5.000 MW for all applicable hours
Noon - 1 p.m.
1 - 2 p.m.
2 - 3 p.m.
3 - 4 p.m.
4 - 5 p.m.
5 - 6 p.m.
6 - 7 p.m.
7 - 8 p.m.
Average Peak Demand (MW)
Call Option Firm Contract Demand (MW)
Curtailable Demand (MW)
Peak Hourly
Demand
(MW)
9.900
10.100
10.200
10.300
10.200
10.200
10.100
9.900
10.113
5.000
5.113
Page 15
MVCO Service

*
Call option price is shown for
illustrative purposes only!
What happens if you exceed the MVCO
Firm Contract Demand during a curtailment?
Call Option Premium Payment
(5.113 MW)($2,500/MW-month)*
= $12,782.50
Penalty Demand
6.500 MW - 5.000 MW
= 1.500 MW
Curtailable Billing Energy Credit
(5.113 MW)(8 hrs)($100/MWH)(5 days)
= $20,452.00
Part (A)
(1.500 MW)(8 hrs)($100/MWH)
= $1,200.00
Total Credit for July
= $33,234.50
Step 1
Step 2
Part (B)
(1.500 MW)(5)($2,500/MW-month)*
= $18,750.00
Example Data for July
MVCO Firm Contract Demand = 5.0 MW
Curtailable Demand = 5.113 MW
(based on highest 8-hour average demand
between noon - 8 p.m. occurring during
that particular calendar month)
Assume five (5) curtailments are requested and that
site reduces to 5.0 MW for all hours except one day
where site reduces to 6.500 MW instead
Total Credit for July
= $33,234.50 - 19,950.00
= $13,284.50
 $65/MWH
Page 16
MVE Service

MVE = Market Valued Energy
–

MVE does not require any commitment up-front to participate,
only an enabling agreement which allows you to bid day ahead
How does MVE work?
– Step 1 -- Each weekday of the year, you decide if you want to
bid between 8 a.m. - noon into the “day ahead” market for a
curtailment to occur on the following day
– Step 2 -- If your bid is accepted, the site will be notified by 4
p.m. that your load needs to be reduced to the level you bid on
the following day from noon - 8 p.m. (summer only – see
curtailment hours table on next slide)
– Step 3 -- You will receive a credit on your monthly bill for each
curtailment equal to the load curtailed multiplied by the energy
price that you bid multiplied by 8 hours
(e.g., 5 MW @ 8 hrs @ $500/MWH* = $20,000 credit)
* Energy price is shown for illustrative purposes only!
Page 17
MVE Service

Curtailment hours
–
Arkansas and Louisiana have different winter peaks. The
curtailment hours are shown below:
Curtailment
hours
Summer
Arkansas
Louisiana
Winter
1:00 – 9:00 p.m. 2:00 – 10:00 p.m.
Noon to 8:00 p.m.
Page 18
MVE Service

Advantages of MVE
– Flexibility -- Ability to tailor a bid each day to your site’s
operational needs/constraints, market conditions, etc.
– Opt-In/Opt-Out -- The only commitment being made when you
sign an enabling agreement is that you will comply with the
terms and conditions of the rider if and when you submit a
successful day ahead bid.
– Load Consistency -- Energy payments are tied to actual load
during the day the bid is submitted between noon - 8 p.m.
versus the same hours on the day of the curtailment. Sites with
consistent hour-to-hour usage patterns may find this attractive.

Disadvantages of MVE
– No Guarantee of Economic Value -- There is no guarantee
that a site will successfully bid during the summer
Page 19
MVE Service

*
Energy price is shown for
illustrative purposes only!
How is MVE credit calculated?
Load Data for One July Curtailment
Firm load of 5.0 MW (dark blue line)
Load on day of bid (light blue bars)
Load on day of curtailment (red bars)
Total Load (MW)
MVE Curtailable Billing Energy Payment
Assume bid of $500/MWH*
(40.9 MWH)($500/MWH)
= $20,450
Total July Credit
= $20,450 plus credits for any
additional curtailments in July
Example Data for July
MVE Firm Demand = 5.0 MW
Confirmation Price = $500/MWH
Curtailable Billing Energy = 40.9 MWH
(based on 8-hour energy usage between noon 8 p.m. occurring on the prior weekday)
Assume during curtailment that site reduces load
to 5.0 MW for all hours
Day of Bid -- Same Hours
Noon - 1 p.m.
1 - 2 p.m.
2 - 3 p.m.
3 - 4 p.m.
4 - 5 p.m.
5 - 6 p.m.
6 - 7 p.m.
7 - 8 p.m.
Day Before Usage (MWH)
MVE Firm Demand (MW)
Curtailable Billing Energy (MWH)
Peak Hourly
Demand
(MW)
9.900
10.100
10.200
10.300
10.200
10.200
10.100
9.900
80.900
5.000
40.900
Page 20
MVE Service

*
Energy price is shown for
illustrative purposes only!
What happens if you exceed the MVE Firm
Demand during a curtailment?
MVE Curtailable Billing Energy Payment
Assume bid of $500/MWH*
(40.9 MWH)($500/MWH)
= $20,450.00
Step 1
Example Data for July
MVE Firm Demand = 5.0 MW
Confirmation Price = $500/MWH
Curtailable Billing Energy = 40.9 MWH
(based on 8-hour energy usage between noon 8 p.m. occurring on the prior weekday)
Assume during the curtailment that site reduces load to
6.5 MW instead of the MVE Firm Demand of 5.0 MW
Penalty Amount
(1.500 MW)(8 hrs)(5)($500/MWH)
= $30,000.00
Step 2
Total Credit for Curtailment
= $20,450.00 - 30,000.00
= ($9,550.00)
Page 21
Sources of Information

E-mail/Fax Services
– MegaWatt Daily


Daily update sent by e-mail or fax
Financial Times Energy - 1600 Wilson Blvd., Suite 600, Arlington,
22209; (800) 424-2908; www.ftenergy.com
VA
– Energy Market Report


Daily update sent by e-mail
Economic Insight, Inc. - 3004 SW First, Portland, OR 97201;
(503) 222-2425; [email protected]
– Power Markets Week


Weekly update sent by e-mail
McGraw-Hill - Subscriber Relations, Energy & Business Newsletters,
Two Penn Plaza, 5th Floor, New York, NY 10121-2298;
(800) 223-6180; www.mhenergy.com
Page 22
Sources of Information

On-Line Services
– Bloomberg Energy


www.bloomberg.com/energy/index.html
Call them at (609) 806-1349 for subscription information
– Altra Energy Technologies


www.altra.com/home.html
Altra Energy Technologies, Inc., 1221 Lamar, Suite 950,
TX 77010; (713) 210-8000
Houston,
– Houston Street.Com



www.houstonstreet.com
Call them at 1-877-725-0510 (toll-free)
E-mail them at [email protected]
Page 23