Lessons from the Polar Vortex: The Value of a Stable Energy Supplier in a Volatile Market

Energy buyers from companies large and small who had not ‘locked-in’ their gas or power rates prior to the infamous ‘Polar Vortex’ learned an unwelcome lesson about price-risk management, planning for the unexpected, and the impact of energy market volatility to their bottom line.

Securing future energy prices, in whole or in part, is one of the key strategies for managing price risk. It can be a defensive strategy to prevent an unexpected increase in cost, as well as an offensive strategy to lower total cost over time by taking advantage of potential market declines.

But the polar vortex taught another unexpected lesson to many energy buyers – that not all energy suppliers are the same. In fact, most people don’t think about the stability of their energy supplier until it’s too late and there is nothing they can do about it. An energy supplier’s stability matters, especially during moments of market volatility.

You see, commercial and industrial end users are not the only ones who have to manage energy price risk. Energy suppliers have to secure wholesale contracts for entire portfolios of anticipated load and match those contracts with the revenue generated from their customers. If they do this successfully, they can be profitable. If they do not, they can quickly encounter balance sheet problems which can ultimately affect their customers.

In the last few months, we have seen stories in the press about energy suppliers who have left the retail market or who are passing through charges to customers because of the market volatility. Some of these suppliers have used certain provisions in their contracts to pass-through increased costs to customers who believed that they had fixed their energy prices and wouldn’t be subject to such pass-through charges. Constellation customers, on the other hand, located in the PJM region (which includes MD, DE, PA, NJ, OH, and Northern IL) with agreements that fixed energy or ancillary costs, did not incur increased rates as a result of this winter’s extreme weather conditions. Constellation’s business model is designed to ensure long-term stability and to withstand the effects of short-term energy price volatility.

Constellation is able to provide stability to our customers because of Exelon’s generation assets that help meet peak demand periods. These assets include the largest nuclear fleet in the country, as well as a diverse mix of fossil, hydroelectric, and renewable facilities. When you combine generation strength and diversity with a strong national wholesale and retail energy business, and back it all by an investment grade credit sheet, you get a stable company you can trust.

So, here is our continued commitment to you:

• We will honor our agreements – a fixed price is a fixed price, with conditions for exceptions due to a change in law specifically spelled out in our contract.
• We are committed to being a leading supplier of energy and energy services for the long run.
• We will continue to offer programs that provide customers with price certainty and price risk management for terms as far out as 3-5 years.
• We will continue to offer business customers the ability to fix potentially volatile ancillary charges as part of electric contract price for price stability during the term of the agreement.
• We will continue to help customers develop energy plans that take price, timeframe, risk tolerance, and budget objectives into consideration, provide clear and understandable terms and contracts, and deliver account management services that make it easy to manage your energy budget.

Constellation is part of Exelon Corporation, the nation’s leading competitive energy provider, with approximately $24.9 billion in annual revenues. The Exelon family of companies participates in every stage of the energy business, from generation to competitive energy sales to transmission to delivery. We are positioned to provide sustained value to customers, employees, investors, and the communities we serve by focusing on the key areas of Exelon’s sustainable advantage – operational excellence, financial discipline and environmental leadership. To learn more about Exelon click here.