Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Stephen Sanders – Stephens, Inc.
Stephen Sanders – Stephens, Inc.
A couple of questions, first on the PJM can you just walk us through a numerical example maybe in the shoulder months and the summer months of what the megawatt price less the retail rate would be just to help us understand the economics and the behavior there a little better?
Dean W. Musser
It’s relatively simply. Basically, you use an average retail rate for a customer of about $75 a megawatt hour and that could range from $50 to $100 but let’s figure on $75 a megawatt hour at the retail rate. So any time the price is above $75 a customer would be in a sense in the money. So, for instance in the shoulder months the price can go up to maybe $100, maybe $120 a megawatt hour so instead of putting that customer in to, their load back in to the system for $120 it would be $120 minus the $75. So, in essence they’re going to get $45 of economic benefit for participating for that hour. That’s the real change in the rules from the past. Now, where that differs now once you roll in to the summer time months the prices increase. So for instance last year, there were about 185 to 200 hours that were over $200 a megawatt hour so in that case if it was $200 a megawatt hour and a customer participates for one hour it will be $200 minus let’s say their average rate of $75, the customer would get $125 a megawatt hour. That’s the big change. What it’s effectively done is move the program from the shoulder months to a summertime month.
The other thing that it’s done is in an economic program there are only so many hours that a large C&I customer would want to participant in that type of program. So, from an opportunity cost perspective you don’t want to burn them out in their first quarter where there would be little economic benefit, maybe $25 to $50 a megawatt hour, you’d rather wait and hold those hours and use them in the summertime months when they could get upwards of $200 to $300 a megawatt hour. So, we had to be very prudent on dealing with our customers to not just register them for low economic benefit. In the past the customer got full LMP, locational marginal price if the price was above $75. So, in that case if it was $100 they received $100 for every hour they participated not $25.
- To read the full transcript on Seeking Alpha, click here »
