ConEd turns up the heat with new pricing system.

As of May 1, Con Edison has switched to a mandatory day-ahead market for their New York City energy users that have a peak demand of at least 1,500 KW. This will put the responsibility for a building's energy bill--and subsequently, its energy usage--in the hands of building owners.

In the day-ahead market, at the end of every day, Con Edison will post electricity prices for each hour of the next day, giving building owners the chance to plan their energy usage for the next day.

"It takes out any risks from Con Edison and puts all the volatility on the end user," said David Neiburg, president of Energy Spectrum. "For instance, if a building uses a lot of electricity mid-day, they'll be charged a lot of money because they're using a lot when it's expensive."

In the fixed rate market Con Edison was previously using, he said, office buildings were paying between 12 and 15 cents a kilowatt hour in April. With the day-ahead market, prices are expected to fluctuate.

So far, there are only 150 large buildings affected by the mandatory day-ahead pricing, with a handful of smaller buildings trying it on a voluntary basis.

"There could be some customers who, if they don't respond by modifying load patterns, could see some bill effect," said Doug Lutzy, chief of the office of electricity and environment rates and tariff section of the Public Service Commission (PSC), who ordered Con Edison to switch to the day-ahead market last fall. "We are working to find out which customers might be negatively impacted by the program and work with them."

Chris Olert, a spokesperson for Con Edison, said that individual customers will see higher or lower costs in each billing period, depending on relative hourly weighting for their consumption compared to system average consumption patterns. This means that customers using relatively high amounts of energy during high priced afternoon periods will probably see higher energy bills than they would have in the old pricing method.

Energy prices have been volatile lately and market projections call for summer bills to be similar if not slightly higher in 2006 than in 2005. Supply disruption for any reason could lead to spikes in electricity cost.

The day-head market in New York City is implemented as energy supply and demand tightens and energy prices have been increasing in the double digits over the past couple of years. Lutzy said that, going into the winter of 2005/2006, the PSC was forecasting electric and gas increases that could have been as much as 50% higher than the prior year.

The city also faces a potential energy crisis that some organizations, such as the New York Building Congress and the New York City Energy Task Force, have predicted could lead to waves of brownouts and blackouts in our area.

"Is there a supply crunch? Yes," said Selena Wong, vice president of MCEnergy Inc. "There are not many large projects moving into the New York City grid and demand has been rising. It's expected to rise a couple percent this year. With the economy the way it is, we expect it to continue to rise over the next couple of years."

She said that the New York Independent System Operator (NYISO) is forecasting a tight supply and demand balance through 2008. "The next couple of years we're going to be right on the edge," she said.

The move to the day-ahead market allows building owners to shop competitively for cheaper energy prices through an energy service company (ESCO) or other third-party energy providers. While Con Edison fully supports their customers saving money any way they can, including by going to an ESCO, what they hope will happen is that building owners will begin to analyze their energy usage and find ways to curtail it during peak hours.

"The whole idea is that if customers are charged for what they actually used instead of a fixed price tariff, they hope [building owners] will be more responsive to take actions, shop more competitively to mitigate risk and look at usage patterns more carefully to reduce their load at the most expensive time," Wong said.

Neiburg said control is important when it comes to energy usage. If a building owner knows that the next day is going to be expensive, they can curtail the load during these expensive times. Building owners, on their own or by hiring a company that specializes in analyzing energy usage, can control their usage with sophisticated load control and optimization. And while only 150 buildings in New York City and Westchester are being affected by the change right now, this number is likely to go up in the future, if the trend in the New Jersey energy market is any indication.

New Jersey commercial and industrial buildings currently buy energy in the real-time market, meaning energy prices change every five minutes forcing buildings to adjust to these price changes quickly and efficiently. In 2003, New Jersey customers in the primary service class went to the real-time rates. The next year, this moved down to secondary customers who have capacity demand of 1,250 KW. Currently, this has been opened up to customers at 750 KW hours on a voluntary basis, but Wong said the goal in New Jersey is for the real-time market to move all the way down to residential buildings.

Not only does Wong expect to see Con Edison's requirements for the mandatory day-ahead market to lessen over time, spreading out to more buildings in the New York City area, she also feels that this is "part of [their] way of moving to real-time market prices" in New York.

"We feel the energy market is becoming more complicated and certainly this supply and demand in city is increasingly on brink," Wong said. "So any events can cause extreme volatility and this hourly pricing is one way to put the responsibility in the customers hand so that they pay for what they use, and can figure out how to best mitigate price risk through how they can best manage their building."