Overview
On Friday, I had the opportunity to tour the New Fulton Fishmarket in Hunts Point, the Bronx. The market is second in size worldwide only to Tokyo’s Tsukiji wholesale seafood market. It handles millions of pounds of seafood daily and annual sales exceed one billion dollars. It was an incredibly impressive place– employing hundreds of people and housing over 30 wholesalers– many of them long-time, family-owned businesses. It reinforced the importance of helping businesses maintain the lowest possible operating expense so that businesses, non-profits, and manufacturers can plow capital back in to hiring, programs, and facility investment. The employment benefits of a vibrant market extend up and down the east coast and probably around the world.
NYPA’s ReCharge NY program is a government-sponsored program that seeks to do just this. ReCharge NY replaces NYPA’s Power for Jobs program.
According to Governor Cuomo’s press release:
Recharge New York offers seven-year contracts for low-cost power and is backed by a dedicated block of sustainable hydropower. The Recharge New York Power Program:
- Provides 910 MW of power for participants in the program
- Is supported by 455 MW of hydroelectric power, a clean, cost-effective and stable source of energy, and 455 MW of market power
- Reserves at least 350 MW of the program for upstate businesses and institutions
- Reserves at least 200 MW for business attraction and expansion
- Reserves up to 100 MW for not-for-profits. (“Governor Cuomo Launches ‘Recharge New York’ Program Allowing Businesses to Buy Low Cost Power and Create Jobs”).
By the way, this is NOT breaking news. What is timely is that businesses and non-profits have received awards (as of April 24) and now they need to make some decisions.
It is up to all of us in the energy industry to help quantify savings from this program for businesses and non-profits. It is up to the recipients to determine the benefits to them– in capital freed up for hiring and investment. In an effort to make this easier on businesses and non-profits, we’ve highlighted key issues.
Major points to consider
Three questions worth asking…
1. What are my savings compared to the market rate?
The Megawatt Hour’s customer analysis shows a 7 to 9% savings on the Hydro Power Option (Option 2). The Blend Option (Option 1) will probably save you money over time, but it may not show savings in the first year. The decision that you make should be driven by data and analysis– a savings analysis of these two options compared to the market rate. Also, you should factor in the commitments you will be making under the ReCharge program, as well as your business goals. The greatest savings over the market price will come from choosing the Hydro Option (Option 2).
In either case, you will be paying more for ReCharge power than you would have paid under the prior Power for Jobs program. You should prepare your financial folks for this change by showing them a forecast of your costs under the ReCharge program.
2. What option do I choose: The Blend Option (Option 1) or Hydro Power Only (Option 2)?
The answer will depend on your usage, your business goals (do you need to show savings this year, or are you more concerned about the next 3 years), your NYPA allocation, and how volatile energy markets are. Definitely take Option 2, but Option 1 will require some analysis.
Market prices are low now. Historically low. As market prices rise, which they will do over 7 years, the NYPA options will reduce your risk and exposure to increasing prices. How much you save will depend on how quickly and how much NYPA adjusts their rates.
You can see, by looking at the following graph, how market prices have changed for the initial 3 year ReCharge contract period (July 2012-June 2015). Now is a good time to lock in a ReCharge blend or a ReCharge hydro price, particularly if it looks as if it is below market prices (which our savings analysis indicates).
3. What commitment am I making, really?
First, in order to start your ReCharge allocation on July 1, you need to respond to NYPA with a signed contract by this Friday, May 25. We understand that if you don’t decide by this Friday, it will delay the start of your NYPA ReCharge contract. But you will not lose your NYPA allocation. You will have to go to a variable rate contract for one month if you miss the May 25 deadline, but you can still receive NYPA ReCharge Power in August.
Second, you need to evaluate the savings that you receive from ReCharge against the jobs and capital investment decisions that you are making. All the information that we have indicates that the Hydro-only option (Option 2) will reduce your costs and the Blended Option (Option 1) will reduce your costs and your exposure to price fluctuations. Starting in 2014, NYPA can adjust the price of the Hydro Power, and starting in 2013, NYPA can adjust the price of the Blended Power. The key question for recipients is how much and how quickly will NYPA adjust prices. The more blended power that you choose, if you choose Option 1, the less exposure you have to a variable rate. But you need to be comfortable that the Blend will continue to be more or less below the market price, and the commitments that you’re making are in line with the savings that you receive.