When the market for electric generation in northern Ohio first truly opened up back in 2009, nearly every energy user was thrown onto FirstEnergy’s Standard Service Offer (SSO) rate. The SSO is the rate that FirstEnergy-Ohio customers that are not competitively sourcing their electric generation pay for power.
At that time, Brakey Energy participated in a mad scramble to get our clients off the SSO. After all, the SSO was a rate far higher than what just about every energy user could procure on the competitive market. Ever since we successfully migrated our clients off the SSO by competitively sourcing their electric generation, we haven’t looked back. That is, until now.
FirstEnergy Announces New SSO Rates
On Friday, May 1, FirstEnergy announced the new SSO rates for the period beginning June 1. That weekend, my team and I crunched numbers for a subsection of our clients.
These clients have generation contracts fast approaching expiration, but previously received generation quotes at very high prices. These unattractive prices were largely because these clients have outsized exposure to the soaring capacity prices that start this June.
However, FirstEnergy did something very clever to help customers with this outsized capacity cost exposure: It blended the coming large capacity-cost spike over several years when formulating SSO prices. For this reason, the newly announced SSO prices are artificially lower than what they otherwise would be.
Enormous Savings by Defaulting to the SSO
A prominent Cleveland-area company recently retained our firm, hoping we would be able to secure more attractive quotes for its headquarters than what it had directly received from suppliers. The quotes it had been receiving on its own were exorbitantly high relative to its current rate.
At this task, one could say that we failed miserably. There was simply no way for a competitive supplier to get around the enormous capacity cost obligation associated with serving the customer’s load.
However, we convinced the company to wait before contracting. We wanted to see what the new SSO rates would be before locking in significant rate increases.
Sure enough, starting in June, the new SSO for the customer’s rate schedule (Ohio Edison General Service Primary) will be a weighted average rate of 6.3845 cents per kWh. By defaulting to the SSO instead of accepting a supplier offer, this customer will save $95,000 over the next twelve months.
Importantly, this customer did not fall prey to the fallacy of simply entering into a three-year contract in order to amortize the large spike in capacity costs. This is the tactic being pushed by most brokers and suppliers for similarly situated customers.
When capacity prices revert to more normalized levels in June 2016, this customer will migrate off the SSO into a contract with a retail supplier. Based on the quotes we have seen, it will be at a highly competitive rate.
What Brokers and Suppliers Aren’t Telling You
Brokers make money by embedding hidden commissions in generation products. No matter what they profess, they are an agent of generation suppliers, not their clients. If you don’t contract, then they don’t get paid.
Suppliers make money by selling electric generation. No matter what they profess, their goal is to get you to sign a contract. If you don’t contract, then they don’t get paid.
Despite the enormous savings to be had for many customers by simply defaulting to the SSO, because of their selected energy management partners, they will never realize it is an option. If you are staring at sky-high generation quotes, perhaps no contract is your best contract.
Note: This article was authored by Brakey Energy President Matt Brakey and was originally published by Crain’s Cleveland Business on 5/8/15. You can view the original version on crainscleveland.com.