Direct Access Deal Structure

1
Direct Access Deal Structure

• Carolyn Kehrein
• Energy Management Services

2
DA Deal Structures

• Deal Structures allocate the risks between the
  parties
• In the beginning of DA (1998 and 1999), the
  supplier took most of the risk
• Since 2001, DA customers have had to take a
  greater share of the risk because
• 1) Premium prices products are too expensive
• 2) Suppliers are more risk averse

3
Deal Structure Examples

• 1998 and 1999
• or discount off bundled tariff
• or discount off the PX Credit
• Summer 2001
• Fixed Price for Load Following Product
• (with usage tolerance bands)
• Fixed Price for Block of Power
• (customer takes imbalance risk)
• Load Following Product Normally Priced at a
  Premium

4
Internal Contracting Realities

• It takes significant internal resources to
  negotiate contracts
• It takes time for internal approvals of contracts
  and pricing confirmations
• Prices are good for minutes not days
• Prices are different before and after a contract
  is awarded
• Many companies cannot jump at an opportunity if
  it requires a contract approval

5
Natural Gas Deal Structure

• Natural Gas Deal Structure
• Cost NYMEX Basis LDC Costs
• Power Analogy
• Cost Block Load Shaping ESP Fees ISO

6
Unbundling Power Commodity Cost

• Power Commodity Cost
• Block Load Shaping ESP Fees ISO
• Block transparent, liquid market like NYMEX
• Load Shaping can be unbundled
• ESP Fees can be unbundled
• ISO Charges pass through under all scenarios

7
RFP Mechanics

• Block Price
• Bid specifies that buyer can buy at the
  then-current InterContinental Exchange (ICE) SP15
  forward price at any time.
• Suppliers bid Load Shaping Service and ESP Fees.
  Fees include cost of converting ICE to
  block/wholesale quote and are specified for
  duration of contract.

8
Result

• Customer unable to take load shaping risk can
• buy power competitively at any time,
• select market timing and purchase durations, and
• react to changes in the market
• Without being overcharged for the commodity