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Direct Access Deal Structure

Learn about how Direct Access Deal Structures work in energy management, how risks are allocated between parties, and examples of deal structures from 1998 to 2001. Discover the complexities of internal contracting realities in the energy industry and the mechanics of Natural Gas Deal Structures. Gain insight into power analogies and RFP mechanics to navigate energy markets effectively.

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Direct Access Deal Structure

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  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

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