Published to LuthINformed, Issue 9 (August 22, 2016)
In this issue, we offer a look at energy losses. This sometimes overlooked factor plays an important role in power pricing and, as it turns out, our climate too. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…
What Exactly are losses?
Electricity losses are the result of technical inefficiency and theft. During electricity transmission, some power is lost through wire resistance, transformers, and other physical causes. This “line loss” occurs at two levels: during transmission at high voltage to a utility, and again at lower voltage as the utility distributes power to customers. In addition, Unaccounted for Energy (UFE) refers to unexpected unmetered electricity use and electricity lost to ground due to equipment failure, faulty wiring, etc. Just how much energy is taken up as Losses and UFE depends greatly on the physical characteristics of the system in question – as well as how it is operated. Generally speaking, Transmission and Distribution (T&D) losses between 6% and 8% are considered normal. See chart below for a state by state breakdown of losses.
Transmission losses are typically included in a zonal price. However, it may not be included in a retail power supply price. This is one very important reason why losses matter to you. Losses are built into utility tariff rates, and typically in fixed-rate commodity prices from retail suppliers (ensure the contract doesn’t say otherwise). Under indexed pricing, however, the price “floats” based upon the hourly wholesale market price. A supplier then adds a per kWh adder that includes capacity, ancillary services and the supplier’s management fees. Line loss may be an extra line item charge. As always, any supply contract terms should fairly protect the interests of both buyer and seller. Failure to take losses into account could mean an unexpected increase in your power price – and budget.
Retail Suppliers and Losses…
Most retail suppliers use a fixed line loss rate for the term of a contract, but that number varies among suppliers. In indexed bids, some use Con Edison’s standard average of 7.9%, but others offer factors as low as 5.5%. It’s clear that some suppliers use complex loss calculations involving floating factors that cannot be compared in advance, such as:
- Con Edison’s posted average monthly line loss numbers
- A rolling, 12-month average weighted rate based on a customer’s particular On and Off-Peak usages
- Con Edison’s line loss numbers multiplied by a customer’s hourly kWh usage
Con Edison’s hourly loss factor has historically ranged from +26.1% to -12.8%. Line loss can be a negative number because each hour’s loss is initially based on the standard load profile for each rate class, and then corrected in the following hour based on actual data. If your contract allows for a pass thru of losses, then we recomend a quarterly reconciliation based on posted factors; if losses are fixed, then your contract should clearly stipulate the line loss factor to be used.
Con Edison publishes a monthly supply charge (MSC) for each of its 3 zones (H, I, and J) and which is adjusted for losses. This data can be found here. In April of 2009, it began publishing Unaccounted for Energy through its ESCo News bulletins, typically three months after the fact (find UFE data here) Those hourly factors, however, are initially based on standardized, system-wide load profiles. They are then corrected in the next day’s (or month’s) line loss percentage for the same timeframe.
Efficiency Gains and Losses…
Recent efficiency developments that improve transmission technology offer real benefits beyond simply minimizing losses. Lower losses equates to very real emissions reductions – smaller losses means less of a need for generation – and the fuel required for it. However, gains in efficiency are only recent and implementation has been sporadic. Data is only available through 2014, and does not necessarily reflect such recent progress (See chart above. Source: EIA).
Natural Gas Outlook…
The latest inventory report (above) shows a net increase of 22 Bcf vs. the previous week. Stocks were 327 Bcf higher than this time last year and 405 Bcf above the five-year average. Current natural gas strip prices are listed below:
12 month strip = $2.921
24 month strip = $2.952
Cal Year 2017 = $3.012
Cal Year 2018 = $2.946
(all prices NYMEX only; A/O 8/19/16)
For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.
Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.