Electricity

   The single most common factor we find among electric customers is confusion.
Faced with a marketplace that has changed several times over the past few years
and continues to change, coupled with an influx of suppliers, many of which offer
different options and recommendations, it would be surprising if consumers were not
confused. The good news is that once you understand a few basic concepts, the
market and your choices are not so confusing. The issues you need to understand
are:

        When to look for a supplier other than Com Ed.
        Understanding what you are billed for.
        Understanding what components to lock.
        When you should lock rates.
        How long you should lock rates for.
        What to look for in a supplier.

Who Should Look at Alternative Suppliers

     As of May, 2008, Com Ed no longer offers a fixed rate to several classes of
customers. Those customers who elect to remain with Com Ed will be billed on an
hourly charge, meaning a variable rate. While no one can predict what these rates will
be, it is important to understand that they are volatile, as they are subject to swings
in the marketplace and have the potential to be very expensive. Because of the
uncertainty of these rates, we strongly recommend locking into a fixed rate with a
supplier other than Com Ed.

Greater than 3000 kw - Hourly service only.

1000 to 3000 kw - Hourly service only.

400 to 1000 kw - Hourly service only.

100 to 400 kw    
 If account was on Com Ed’s fixed rate on 11/11/07, the account is eligible to
remain on the fixed rate until May, 2010.
 Accounts that leave Com Ed’s fixed rate after 11/11/07 can no longer return to
Com Ed’s fixed rate. Com Ed will supply hourly service only.
 After May, 2010 – hourly service only.

Under 100kw - Eligible for fixed rate until further notice.














What Components You Are Billed For
     
     Suppliers other than Com Ed offer a number of billing options. Under these
options, they may bundle one or more of the charges as a single line item. The most
important factor to understand is what charges are being fixed by the supplier and
what charges are being billed as a pass through item. Regardless of which supplier
you select, you pay for the same charges. The amount you pay for your energy,
however, may change. These charges are:

  • Energy Charge
  •        Cost of electricity
  •        Set by supplier
  • Capacity Charge
  •        Capacity is the cost of reserving generation space on the network.         
  •        Set by Com Ed, can be bundled with energy charge when billed by         
    supplier.
  • Line Losses
  •        As electricity moves through the network of poles and wires, energy is
    used. The amount of electricity measured at the meter is less than originally
    produced at the generation facility.         
  •        Set by Com Ed, can be bundled with energy charge when billed by
    supplier.
  • Ancillary Charge
  •        Fees to recover the administrative costs of overseeing the markets and
    supporting transmission services.         
  •        Set by Com Ed, can be bundled with energy charge when billed by
    supplier.
  • Transmission Charge
  •        Costs associated with the transportation of electricity from the generating
    station to the distribution system.         
  •        Set by Com Ed, can be bundled with energy charge when billed by
    supplier.
  • Delivery Charge
  •        Delivery charges cover the use of the delivery company's poles and wires,
    costs associated with reading the meter, public programs, taxes and other
    costs of doing business experienced by the delivery company. Set by Com
    Ed. Generally not bundled with energy when billed by supplier.
  • Taxes
  •         Generally not bundled with energy when billed by supplier.




















What Components You Should Lock

     In addition to locking your energy charge, most suppliers give you the option to
lock your capacity, line loss, ancillary and transmission charges. Before you make
the decision to lock those rates, it’s important to understand that often those rates
are not guaranteed. When locking charges other than the energy charge, suppliers
are most likely locking rates they can not control. This gives them 2 options. Their
first option is to insert a clause into their agreement allowing them to increase the
rate they offered you in the event Com Ed raises their rate. This clause is often called
a “Change in Law” clause.

     Their other option is to hedge themselves against possible rate increases by
increasing the amount they charge you for those pass through charges. Since it is
unlikely a responsible, experienced supplier will place themselves in the position of
charging you less than they are being billed by Com Ed for those pass through
charges, it’s important to understand that you have guaranteed yourself a maximum
rate increase. Suppliers often push these all inclusive programs because it’s best for
them. By either hedging themselves against possible rate increases or allowing them
to change your rate, they risk nothing by offering this product. They do, however,
allow themselves to make extra margin on your account.

     Since the rate you are offered is usually not defined by component, it gives
suppliers the opportunity to change your rate. Since our goal is to make sure you are
billed the rate you are quoted, we recommend locking your energy charges only.

     Finally, we have heard from many customers that sales representatives are
claiming that these all inclusive rates are guaranteed. Upon examination of their
agreements, they clearly are not guaranteed. Please understand that the agreement,
not the word of a sales representative is binding. We recommend examining your
agreement closely.


When To Lock Rates

     It is important to understand that no one knows what the electric market will do in
the future. The main factors driving the electric market are temperatures, hurricanes,
oil prices and the strength of the American dollar. All of these factors are difficult or
impossible to predict, making electric rates impossible to predict.

     Obviously, you want to lock your rates on the day the market bottoms out. While
we can not tell you what the market will do going forward, we can tell you where it is
now, as well as how favorable the factors driving the market are. Knowing that allows
us to make an educated decision whether it is currently favorable to lock your rates. If
it is favorable to do so, we recommend locking them and not trying to out guess the
market.


      












Term Length

The next question you should ask prior to locking into an agreement with a provider is
what term
length is most advantageous for your organization. Because we don’t know what the
market will do going forward, we can not guarantee whether short or long term
agreements are more advantageous.  Some questions to consider are:

  • The difference between short term and long term pricing.
  •        If the pricing is close, what are the odds that the market will increase
    minimally over the long term?
  •        If long term pricing is considerably more expensive than short term pricing,
    is it worth paying more for the short term in exchange for possible savings
    guarantees in the future?
  •        If the pricing is close, is there a benefit to a longer term agreement to
    avoid spending time shopping rates every year?
  •        Is there a possibility that you organization will be sold, close or move in
    the future? If you are planning changes, please discuss this with us so we can
    help you plan for those changes.
  •        If you are sure that no changes are pending and long term rates are close
    to short term rates, you may want to consider long term rates.
  • What is the current status of the market?
  •        The market moves up and down throughout the year. If you are locking
    your rate when the market is high, but are doing so because you are
    approaching your contract expiration date, you may want to consider locking
    short term and then watching for an opportunity to lock long term once the
    market drops. If you are locking when the market is down, it may be
    advantageous to lock for a longer term.
  • What is your comfort level with long term agreements?
  •        Many of our customers are simply not comfortable locking into long term
    agreements. If you are not comfortable doing so, don’t.
  • Is a supplier pushing a long term agreement using the threat of
    substantial future rate increases to push you towards that decision?
  •        As discussed above, it is possible that the market will increase moving
    forward. It is also possible that it will be stable. A question to consider is
    whether suppliers who push long terms contracts using these tactics are
    acting in their best interest or yours. Suppliers and consulting organizations
    like ours benefit from long term contracts, as we are guaranteed customers for
    a longer period of time. This does not mean long term contracts are not
    beneficial. It simply means you should make this decision based on what is
    best for your organization, not ours or a suppliers.



















Choosing A Supplier

There are numerous electric providers in Illinois. While they all claim to have the most
aggressive offering, the difference in those offers is in their nuances. The cost
differences based on those nuances can be substantial. Some factors to consider
include:

  • What rate is being offered for your energy charge?
  •        Is this a fixed rate, or a projected floating rate?
  •        If it is fixed, is it guaranteed for the life of the contract?
  •        Are there clauses in their agreement allowing them to change your rate?
  • Are there collars or contract quantities, which mean you will pay the
    quoted rate for a percentage of your usage and an unspecified rate for
    changes to your projected usage?
  • What ancillary charge is being quoted?
  •        Is it fixed, or charged on a pass through basis?
  •        Is it different that Com Ed’s quoted rate? If yes, why?
  • What capacity charge is being quoted?
  •        Is it fixed, or charged on a pass through basis?
  •        Is it different that Com Ed’s quoted rate? If yes, why?
  • What line loss charge is being quoted?
  •        Is it fixed, or charged on a pass through basis?
  •        Is it different that Com Ed’s quoted rate? If yes, why?
  • What transmission charge is being quoted?
  •        Is it fixed, or charged on a pass through basis?
  •        Is it different that Com Ed’s quoted rate? If yes, why?
  • If you are being offered and All Inclusive rate, is that rate guaranteed
    for the life of the contract?
  •        Are all rates defined? If not, please be aware of any language that allows
    the supplier to change the rate.
  •        Please confirm that the energy charge is competitive, and that the Com
    Ed charges being quoted are accurate. If they are not, the supplier may be
    allowed to increase your quoted rate to match Com Ed’s actual pass through
    charges.
  •        Are line loss charges included? Please be aware of suppliers who do not
    include this charge, and increase your usage to account for line losses. This
    makes your rate appear lower, but your actual cost is the same.
  •        Are the Com Ed pass through charges being quoted accurately?
  •        Some suppliers quote lower Com Ed charges, making their offer appear
    more attractive. When the customer receives their first invoice, the true charge
    appears on the invoice.
  • How long has the supplier been in business?
  •        Are they financially stable?
  •           Is their ability to obtain credit at risk?     
  •        If they are a private company, will they release their financials to you?
  •        Do they pay Com Ed delivery charges before or after they receive
    payment from you? How can you confirm this?
  • What are the renewal terms?
  •        Will you be trapped into another term with that supplier if you don’t reply
    to a renewal offer within a 1 to 2 day period?
  • What is the supplier’s reputation in the industry?
  • How stable is the supplier?
  •        How many sales and customers service representatives do they employ?
  •        How long have they been with the organization?
  •        How many years of experience do their representatives average?
  •        What is their employee turnover?
  •        Has the supplier increased or decreased their number of employees over
    the past several years?                                        


UMG’s Electricity Management Services

The electric market is a very volatile market. Once we obtain a customer’s
information, we will monitor the industry for programs which will allow them to
experience the greatest level of savings. Additionally, once a business is our
customer, we will periodically review their account to make sure they are
experiencing the savings we promised.

Electric quotes are market sensitive. Since they are based on the savings available at
the time the account was run by the provider, if a signed agreement is not received by
the provider by the offer expiration date the account will be rerun when they receive it.
If the market changed, the rate you are offered will changed as well.

The Sales Process

The sales process is simple. You will be asked to provide us with your last bill. If that’
s not available, any recent bill will be acceptable. A UMG representative will fill out a
one page form requesting a savings analysis and fax the bill and analysis request to
our providers. Usually within 1 to 3 days, UMG will receive an analysis back from the
respective providers showing the available savings. This information is forwarded back
to you, and the appropriate paperwork is submitted to allow you to take advantage of
the new pricing structure.
Utility Management Group