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Staying Flexible: How Load Profiling Can Unlock Complex Rate Structures for Retail Supply

Load profiling, or distributing the variation in electrical demand/load over a specific time period, continues to play an important role in retail energy markets. For over a decade, utilities profiled metered monthly usage to bridge the gap between end user consumption and wholesale energy settlements.

08 / 16 / 2018 Power Trevor Safko, Analyst

Load profiling, or distributing the variation in electrical demand/load over a specific time period, continues to play an important role in retail energy markets. For over a decade, utilities profiled metered monthly usage to bridge the gap between end user consumption and wholesale energy settlements. As these markets mature, Retail Energy Providers (REPs) look to offer more exotic products to their customers, both to differentiate themselves within competitive markets and to offer potential customers a wider variety of rate structures.

Complex retail products indexed to wholesale pricing points are a long-standing feature among large commercial and industrial consumers. The GP Energy Management Team observed this emergent trend continue in recent years with smaller commercial and residential users, particularly with the growth of Advanced Metering Infrastructure (AMI). Time-of-use products attract a sophisticated consumer base with more ‘flexible’ demand (i.e., the ability to shift load to cheaper off-peak hours). It is imperative for Electric Data Interchange (EDI), retail billing providers, and load-serving entities (LSEs) to incorporate dynamic load-profiling methodologies in parallel to those of the local utility. For billing/EDI vendors, this requires developing hourly billing systems at the account level to create a shadow-settlement mirroring the wholesale load obligation of the LSE. For LSEs, dynamic load profiling, in conjunction with a precise forward pricing model, is necessary to account for fixed costs and other complexities as part of a larger risk management and pricing strategy.

There is no standard approach to load profiling meter-reads and utilities employ a wide variety of strategies to determine the wholesale obligation of LSEs. Consolidated Edison in New York relies on a temperature-based model that groups usage based on the day of the week and on a variety of billing determinants (annual usage, summer demand, etc.). First Energy utilities, which include Cleveland Electric Illuminating, Jersey Central Power and Light, and PEPCO Holdings calculate hourly usage using a temperature regression that discriminates between day type and season. In contrast, National Grid in upstate New York favors a unitized approach, publishing load shapes as percentages rather than average volumes. Any REP looking to implement complex billing for profiled customers must understand both the variety and specificity of current load profiling methods. This requires a dedicated approach to create and maintain hourly shapes. A robust load profiling methodology allows for the creation of hourly rate structures, further bridging wholesale markets to the consumer.

Once an accurate profiling method is implemented, account-level settlements can be calculated at the hourly level, allowing for complex billing products including: Index +, Block and Index, Time of Use, and Peak and Off-Peak rate structures to compliment the more common fixed and monthly-variable rate plans. These diverse rate structures offer unique marketing opportunities, but also require a nuanced risk management strategy than can mitigate or transfer the risk associated with wholesale commodity markets to the appropriate customers. The ability to offer a suite of rate structures ultimately benefits both the LSE and the end-user with greater choice and flexibility of retail supply. To learn more about load-profiling or deploying complex rate structures, please contact us.