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Archive for October, 2011

This is a great article about the current State of the market and everyone needs to read.

Texas Electricity Prices Likely to Rise
By Elizabeth Souder
Dallas Morning News
October 26, 2011

Texans, prepare to pay more for electricity.

And don’t expect to get any more reliability for your money. In fact, next year, the lights seem more likely to go out.

The problem is, power companies aren’t building many more generating plants. Some companies are shutting down plants that are old or don’t comply with new pollution rules. At the same time, Texans are using more electricity than ever. In the Texas deregulated market, when supply declines and demand rises, prices go higher. That could put Texas electricity consumers on a free-market roller coaster. “I think there may be some pressure for prices to rise,” said Phil Tonge, president of electricity retailer Spark Energy. “I’m knocking on wood right now. I’m hoping we don’t see another summer like we did this past summer.”

During the past few years, natural gas prices have been low and steady. Since natural gas prices tend to set the price of power in Texas, wholesale power prices have also declined. That’s good for consumers, right? Maybe not for long. Low prices have deterred some power companies from building new plants. Tight electricity supply could soon turn power prices higher.

The Electric Reliability Council of Texas, which operates the state grid, predicts demand for power will increase steadily for the next decade as population increases. The council’s predictions can be conservative. This year, we used much more electricity than expected, thanks largely to February’s freeze and August’s record inferno.

Power plants
At the same time, the supply of new power generation isn’t keeping pace with demand growth. Between 2000 and 2002, when natural gas was cheap, power companies built more than 100 natural gas-fired generators within the Texas grid. Then, as natural gas prices rose to record levels, driving wholesale electricity prices higher, power generators built dozens of wind and coal-fired plants. Wind and coal plants are cheaper to run than natural gas plants, and therefore earn a fatter profit margin when natural gas prices push wholesale power prices higher.

But when natural gas prices collapsed a few years ago, power-plant building hit the skids.

Consider how things shaped up for the plants that were scheduled to go online next year. Back in 2007, plant operators had the permits and grid-connection agreements to add 4,221 megawatts of capacity in 2012. The following year, the planned capacity for 2012 rose to 5,987 megawatts. Now, generation companies plan to add 1,940 megawatts of capacity next year, less than half of what they originally intended. Also, the state’s largest power generator, Energy Future Holdings, announced it will stop operating two coal-fired plants in order to comply with stiffer pollution regulations. That would wipe out 1,200 megawatts of capacity on Jan. 1.

Without those power plants during the August electricity emergencies, the lights would have gone out, ERCOT executives have said. ERCOT chief executive Tripp Doggett predicts the loss of power generation due to new Environmental Protection Agency rules could boost customer electric bills by around 10 percent.

Price signals
In theory, when generating company leaders see higher prices, they build more plants. But some experts say prices aren’t going high enough in Texas to persuade power-generation companies to break ground. So long as natural gas prices are low, investors worry any rise in wholesale power prices is temporary. “Fundamentally, we’re trying to establish the right price signals to get the investment we need when we need it, to keep the lights on,” said Dan Jones, ERCOT’s independent market monitor. He thinks prices should be allowed to go higher.

In the land of electricity deregulation, ratepayers no longer pay a monopoly company to build power plants. Instead, competing power generators build plants on their own dimes and make money by selling the electricity into the market. Each day, power generators bid their electricity into the market. ERCOT tells power plants to fire up to meet demand, calling on the cheapest bids first.

Some old, inefficient natural gas plants cost a lot to operate and may get called on to do so only when demand is tight and market prices jump very high. For those plants to make enough money to stay in business, they need to get called on to operate a few times a year at extremely high prices.

Currently, wholesale prices are capped at $3,000 per megawatt-hour. (The average Texas family uses about one megawatt-hour of power each month.) That cap is far, far higher than the usual market price of around $20 to $50 per megawatt-hour. Jones, the ERCOT market monitor, proposed boosting the cap to $6,000 per megawatt-hour, but only when ERCOT declares a grid emergency.

Trickling down
Higher wholesale prices have a way of trickling down to consumers. Anyone who signed up for a variable-rate plan, in which rates can change each month, probably saw much higher rates after this year’s grid emergencies. Even people on fixed-rate contracts could see higher prices when their contracts come due. That’s because if wholesale prices are higher, it costs retail electric providers more to buy the power. And if wholesale prices are more volatile, retailers have to pay more to protect themselves from price swings.

Retailers often buy electricity ahead of time to keep costs predictable, or they invest in market securities that hedge against price swings. “Almost anyone who’s a retailer in Texas, if they don’t have any generation, is going to have to take significant steps to protect themselves against the high peaks,” said NRG Energy chief executive David Crane. NRG executives have said they expect to spend more money next year to protect their retail companies against price swings, and such costs will surely fall to customers across the industry.

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1. Make Your Website More Valuable
Give your prospects clear reasons to choose your company by focusing on what really sets you apart from your competition … the things you can do that no one else does. Then give prospects and clients a reason to come back to your site by posting useful information, like market updates.

2. Get Found Online
When business decision makers want to find a new service or vendor, they often start their search on the web. To make sure your company shows up on the top of Google, Bing, and Yahoo results pages, identify the key words that best describe your business and make sure they appear across all pages on your site.

3. Invest in a Pay-Per-Click Online Campaign
“Pay-per-click ads” appear at the top and right sides of search engine results pages. They get their name because you pay a pre-set amount each time a searcher clicks on your ad. The amount you pay, and where your ad is listed on the search results page, are determined by a bidding system.

4. Build Your Local Network
The more involved you become in your local community, the more awareness you can build for your company – awareness that can lead to referrals. Join and get involved with your Chamber of Commerce, Rotary Club, and business networking groups. Become a board member of a local nonprofit. Sponsor a community event.

5. Build Your Prospect List
Every business needs a large, up-to-date list of prospective customers to use for cold calls, direct mail, and other marketing activities. You can get lists of local businesses from data companies, and then add your own network and referral names. Keep your list up to date – using information that’s out of date can reflect poorly on your business.

6. Generate Leads with Direct Mail
Put your marketing message directly into the hands of prospective customers with a direct mail program. Give them a reason to call you – offer a free energy analysis for their business on a report on electricity rates. And focus on the benefits of your company – how they will save time or money working with you.

7. Step Up Your Social Media
More and more businesses are making social media a part of their marketing plans. Become a LinkedIn member, and after you meet with a prospective customer, ask them to join your network. Join LinkedIn groups in your community. Post energy-saving ideas for businesses on a regular basis.

8. Communicate Regularly
Business people are busy people. And your call or direct mailing may not reach them right before their contract renewal. Communicating with your prospect list on a quarterly, or even monthly basis, builds awareness for your company. And gives you the best possible shot of being top of mind when they have a need.

9. Become the Industry Expert
Business people want to work with people who are experts in their field. Offer to speak about energy saving strategies at local business association meetings. Write a business energy advice blog. Hold an energy “lunch and learn” session at a local restaurant.

10. Finally, Set a Goal and Work It
The most successful way to market your company is to set a prospecting goal for your company and work it every week. Schedule your marketing activities – website updates, social media posts, direct mail programs, speaking engagements, networking events, cold-calls, pay-per-click campaigns – on a monthly calendar and check off your progress every week.

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To remain competitive in today’s marketplace, businesses strive for differentiation. One of the most promising ways for gaining that competitive advantage in recent years has been through a dedicated, company-level focus on sustainability.
We now see corporate America entering into an era of transformation, where businesses are placing serious value on sustainability practices. But this is just the beginning.
The Carbon Disclosure Project (of which my company, PricewaterhouseCoopers serves as the global advisor and writer of the CDP S&P 500 report), found a majority of leading American companies now integrate climate change into their core business strategies.
That is a first in CDP’s 10-year history. In fact, there was a doubling of companies reporting climate change policies as an integral part of corporate business strategy, up 30 percentage points from last year. Once seen as a tool to manage corporate risk, sustainability is increasingly becoming an opportunity for growth.
Nearly 90 percent of S&P 500 survey respondents indicated board or senior management oversight of their company’s climate change programs, indicating that the issue is viewed as an operational, fiscal and strategic business imperative. More companies understand that sustainability offers significant first-mover advantages.
As my colleague at PwC, Doug Kangos, observed during a webcast we hosted last week, “the S&P 500 2011 CDP leaders use sustainability to differentiate themselves in the same way they approach brand quality, product quality, service quality, market share, and so on.”
Once these benefits are recognized, many companies begin to consider how sustainability can be incorporated into the overall business strategy to protect enterprise value and generate strategic advantage. Those companies are reducing costs, mitigating current and future risks and even creating new revenue streams.
This suggests a permanent shift in the view of sustainability as being solely an environmental issue, or “something nice to do,” to being a strategic business imperative.
PwC’s 2011 Global CEO Survey found that 72 percent of CEOs support “good growth” that is economically, socially and environmentally sustainable. Because more senior level executives are grasping the realities of today’s business risks — including energy and natural resources constraints and costs, regulations impacting the sourcing of conflict minerals, and increasing investor pressures and consumer demands — businesses understand that being “reactionary” will not drive growth.
Proactive steps to sustain one’s business over time will ultimately yield positive returns. In fact, contrary to conventional wisdom, survey respondents cite commercial benefits as significant, with over 60 percent of projects offering payback in three years or less.
The CDP report discloses many examples of leading companies’ successful sustainability programs, including:
General Electric: All of GE’s industrials businesses conducted emissions reduction projects in 2010. The 238 completed projects range from new technologies, to enhancing the efficiency of existing equipment, to driving employee engagement in energy conservation. As a result, GE saved just over $7 million with an overall payback period of 1.47 years.
Praxair: In 2009, Praxair voluntarily started collecting environmental key performance indicators in productivity projects. One year later, 8 percent of Praxair’s projects were tagged “sustainable development” and produced $32 million and 278,000 metric tons of CO2-equivalent in savings.
United Parcel Service: Lastly, UPS uses more than 95,000 ground vehicles, more than 200 aircraft and the services of many other transportation companies. In 2010, routing technology provided savings of 63.5 million miles or 6.3 million gallons of fuel.
The natural evolution for companies to transform and become a truly sustainable business requires embedding sustainability not only at the board level, but across the entire organization.
Although we see a significant increase in CEO level focus throughout the S&P 500, we do not yet see integration across the organization in how decisions are made. Companies have not yet integrated sustainability program evaluations with the organization’s assessment of quality, reputation or financial stability.
But there is a reason to be optimistic: There are a growing number of companies leveraging sustainability to optimize their business and lay a foundation for growth. And that growth generates economic activity and prosperity. All the while, customers and employees are watching how well companies manage these challenges, increasingly linking brand loyalty to environmentally and socially responsible business practices.
The greatest value for businesses may be derived through sustainability competitive analysis, reporting and disclosure, revenue enhancement, reputational initiatives, or some combination of these factors.

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