Now is the time to contract Electricity and Gas

EMEX

Prices for electricity and natural gas are nearing record lows, making this a great time for customers to purchase their power ahead of time.

This is due to several factors, including a warmer-than-average weather outlook for spring, a surplus of natural gas supply and a pull-back in power prices.

Here’s what you need to know.

Warmer Weather Is Reducing Demand

For those living in the snow-covered regions of the Mid-Atlantic and Northeast, it seems hard to believe this winter has been relatively mild compared to last year and warmer-than-average temperatures are on the way. It’s true that last November was the coldest since 2000 and the eighth coldest nationally since 1950. However, this was followed by a warmer pattern in late November and early December. While certain regions have clearly had cold snaps throughout the winter, they haven’t been as widespread and long-lasting as the cold we experienced during last year’s Polar Vortex.

This means demand has fallen compared to last year, contributing to lower prices.

Now that the worst appears to be over and spring is just a few weeks away, the National Weather Service is forecasting a warm spring for the West, Mid-Atlantic and Northeast regions and a warmer-than-average summer along both coasts.

Natural Gas Surplus Keeps Prices Low

Withdrawals from natural gas storage continue to be well below what we experienced last year. In 11 of the last 13 weeks, natural gas withdrawals were smaller than last year. We saw a brief uptick in January, but recovering production and inconsistent demand for heating kept more natural gas in storage. Unless temperatures remain cold through March, we’re on pace to end the season with a surplus.

By contrast, last year’s heating season ended with a deficit in natural gas supply. The elimination of that deficit cut natural gas prices on the NYMEX almost in half. This historical correlation between the gas storage surplus and deficit and the NYMEX 12-month strip, as well as estimates of end-of-season storage, suggest prices could fall even lower this spring.

Gas Consumption Will Reach An All-Time High

With natural gas prices this low, we can expect power companies to use more natural gas and reduce their reliance on coal. We’ve seen an upward trend in natural gas consumption by power companies for the past decade, but now it’s on track to reach record levels, according to the Energy Information Administration.

Gas demand in the power sector is 6 percent higher than in 2014 and 16 percent above the five-year average level. More power companies are retiring aging coal plants and replacing them with natural gas units.

We can also expect to see a greater reliance on natural gas in the West, as less available water creates a decreased reliance on hydropower. In late January, snowpack levels were only about 25-40 percent of what they are normally are, and a weakening El Nino looks to be bringing less rain, which could create a drought in early spring.  During a good water year, hydropower can contribute to up to 30 percent of the power generation mix in the summer, which isn’t likely to happen this year.

As power companies consume more gas and production tapers off in 2015, we should expect to see natural gas prices eventually bottom out.

Now Is the Time To Buy

As natural gas prices continue to fall, long-term power prices, too, are within 1-2 percent of all-time lows. Since the start of the winter, prices have been down an average of $5.49 per mWh.

Taking advantage of these low prices now by purchasing a portion of your energy in advance can help offset the rising costs of capacity and transmission, which are occurring as power companies retire aging plants and build new infrastructure.

BCC offers a variety of energy pricing options, including the ability to lock in prices over the term of your contract, make smaller purchases over time based on market fluctuations or use a combination of these strategies.

Our energy management experts can help you identify the right solution to meet your needs. We also offer a variety of energy management tools that allow you to monitor prices and make smarter purchases based on the market.

Learn more about how you can be a proactive energy consumer with our pricing options and energy management tools—contact us today.

Variable Electric Prices – Know the Risks. Use a Broker!

Variable Electric Rate

“I’m very angry,” said John Venti, a business owner in the Midstate.

Venti, is upset about his most recent electricity bill from Pennsylvania Gas and Electric. He typically paid between $2000 and $2500 for electricity through Met Ed.

This month? “Just under $8,000.”

John’s variable electric price with his competitive supplier jumped from eight cents to 28 cents per kilowatt hour.

“It was just complete shock,” Venti said. “I cried, just because there’s no way I can afford that.”

John is not alone.

We have heard horror story after horror story of business owners that contracted for variable price electricity contracts.  Many signed up for a six-cent rate but didn’t read the fine print about it being a variable rate. It jumped to 22 cents per kilowatt hour the second month.

When they originally signed up, the sales person promised a competitive rate within a few cents of the utility company’s rate.  Well, that was before the unusual weather we are experiencing.

The Public Utility Commission regulates power companies but has very little—pardon the pun—power to reign in variable supply rates. Variable electric prices make sense for a buyer who truly understands the risks and rewards.  But for small businesses, the risks can be catastrophic.

Use an experienced broker

This is just one more reason why it truly pays to contract your electricity through a reputable broker such as Better Cost Control.  By working with all the suppliers, we obtain the best prices and explain all the different contract details so you understand what you are doing.  We never advise small businesses to obtain variable price contracts. Since 2002, we have been helping businesses get the right electricity and gas supply contracts for their businesses.

To obtain a quotation on your business electricity or natural gas, contact us today!

A related story from the Philadelphia Inquirer.

 

Do Power Quality Devices Save Energy?

There are many suppliers that promote energy savings associated with their products of up to 20 percent or more. This sounds like is a substantial benefit, and if you are considering investing in power factor devices, it is important to understand the basis of these energy-saving claims, because they do not apply to all electricity users.  In fact, they don’t apply to most users.

Understanding power factor

Power quality devices that improve power factor can reduce your overall electric bill, while providing little or no energy savings. How is this possible? To answer this question, you must understand the concept of power factor and the difference between active power, reactive power and apparent power.

All electrical equipment requires power to do work; this is called active power and it is measured in kilowatts (kW). Some equipment, such as induction motors or transformers, requires additional power to create the magnetic field needed to operate the device. This is known as reactive power and is measured in kilovar (kVAR). Apparent power, measured in kilovolt-amps (kVA), is the total amount of power supplied (the combination of active power and reactive power). Power factor is the percentage ratio of active power over apparent power. It is demonstrated in the phase relationship between voltage and current; if current leads or lags voltage, power factor is poor.

While power factor is a difficult concept to understand, the important thing to remember is whether your electric bill includes a penalty for power factor. This is because facilities with low power factor draw more kVA, requiring additional generation capacity.

Power factor correction devices, such as capacitors and harmonic filters, can significantly reduce reactive power and improve your power factor rating, but they will have little or no effect on kW power demand or kWh energy use. If your utility charges for low power factor, you can save anywhere from 10 to 30 percent on your this portion of your electric bill, but the actual energy savings from power factor correction is typically much less than 5 percent. (Carnovale 2010)  If your utility does not charge a penalty for a low power factor, these devices will save you absolutely nothing.  If you do have a penalty, remember that the savings percentage only applies to the penalty fee, not your kWH usage.  Most marketers of this equipment do not explain this, unless you are working with a supplier that has the instruments, and the engineer to use them to measure the power factor of your electrical load.  If they don’t, then you will likely be very disappointed.  Power factor correction equipment must be customized to the specific customer.  It is not an out-of-the-box solution that you simply plug in. Don’t be fooled!  Their greatest benefit relate to induction motor devices.

Do your homework

There are opportunities to save money by applying power quality solutions. Power quality devices protect critical equipment, reducing downtime and saving on maintenance and repair costs. In many facilities, power quality devices can improve power factor and reduce utility penalties. While power quality devices can provide a small amount of energy savings in some cases, the energy-saving claims made by some power quality solutions providers are often overblown. It is important to do your homework and carefully investigate any energy-saving claims made by manufacturers before you invest in a power quality solution for your facility.

References

Carnovale, Daniel. “The Truth Behind PQ Solutions and Energy Savings.” Electrical Construction & Maintenance. March 1, 2010.

Electric Power Research Institute (EPRI). Power Quality Guidelines for Energy-Efficient Design Applications. Prepared for the California Energy Commission. January 2003.

Energy Savings Claims from Power Conditioning Equipment

BGE says energy prices will rise for electricity customers

Baltimore Gas and Electric Co. said Thursday that electricity prices will rise for customers who don’t use an outside power supplier, the first jump in energy prices in four years.

That rise in costs, running from June through next May, 2014, comes on top of a distribution-rate increase approved in February.

BGE attributed the electricity price increase to rising natural-gas prices, among other factors.

“We fully understand that cost increases are never welcomed,” said Robert L. Gould, a BGE spokesman. “But we really encourage our customers to help offset the increase.”

One strategy: Shop for another energy supplier.

BGE said nearly 40 percent of its electric customers use third-party companies for their power supply.

The price of natural gas, one of the fuels used to create electricity, plunged in recent years but is on the rise. It cost electric utilities about 16 percent more for natural gas in February than it did the previous year, according to the most recent data from the U.S. Energy Information Administration. The industry’s cost for coal and petroleum dropped modestly during that period.

BGE said customers’ energy costs will be nearly 8 percent lower from June through next May than they were in the 2009-2010 period, thanks to drops in the intervening years. The new price is 14.6 cents per kilowatt hour, compared with 15.8 cents four years earlier.

Energy Market Trend for April-May 2013

A month ago NYMEX futures broke out of their range and exceeded $3.60 per MMBtu for the first time in four months.  A month later those prices look like a bargain as prompt month gas futures have broken $4.20 for the first time since July 2011.  Why?  The primary reason was the weather as March was COLD.  Heating demand depleted storage inventories to levels not seen since the last time that gas was over $4.10 – no coincidence there.  But the long-term picture is a bit different and not as grim.   Gas futures for 2014 are up significantly less than the near-term and 2015 and 2016 are down.  The bottom line is that the rally is being driven by near-term fundamentals while long –term prices have stabilized thanks to shale reserves resulting in a much flatter forward curve.  The detail is in the numbers below:

Prices as of 4/12/13        Change since 3/7/13

Prompt month natural gas           4.22                                        +0.64

12-Month Strip                                 4.37                                        +0.52

Calendar 2014                                   4.26                                        +0.15

Calendar 2015                                   4.27                                        -0.03

Calendar 2016                                   4.36                                        -0.09

($ per MMBtu)

 

Details on the Fundamentals:

 

Weather:

The short story is that we had a winter this year while last year we did not.  Although nowhere near record cold, it was dramatically colder than the record warm winter of 2011-12.  And March was especially cold while last March was especially warm, so winter’s last gasp resulted in a strong surge of demand and storage withdrawals that stoked the market rally.  So now the market can breathe for a month and get ready for summer.  Early forecasts are calling for above normal temps as well as an above normal hurricane season.  But temps are tremendously difficult to predict this far out and storm direction is more important than count.  So for now, summer should be categorized as a critical and imminent point.

Natural Gas Storage :

The impact of weather on gas demand and gas prices is very evident through the trends in natural gas storage.  Over the last month we have seen the culmination of the gradual deterioration of the huge natural gas storage surplus that peaked in April 2012 at the same time that prices hit 10-year lows.  Storage inventories are now far below levels from a year ago and even below the 5-year average.  Here is the data:  current inventories equal 1,673 Bcf which is 804 Bcf or 32.5% below a year ago and 66 Bcf or 3.8% below the 5-year average.  The reduced inventories will result in additional summer gas demand to refill storage reservoirs in order to prepare for next winter.  This increase in demand pushes prices up for this summer and the possibility that we will go into winter with reduced inventories has increased prices for next winter.  But storage has limited impact on prices for the beyond next winter and this is a key reason that prices for 2015 and beyond have not been part of the recent rally.

Production:

Despite the rally, shale gas remains the dominant factor in natural gas prices.  Prices plummeted from 2008 to 2012 while crude oil prices eventually rebounded after the global recession.  And limits to recent price upside and the stickiness of long-term prices have clearly been partially attributed to the enormous shale gas reserves in the US.  At the same time, when the market found a bottom in 2012 and rebounded, one cause was producer reaction to low prices.  The market was just too low and drilling economics are likely to limit both upside and downside in prices for some time to come.  So while production remains strong, it has declined by close to 1 Bcf/day since the peak last November – an indication that producer did react to low prices of 2012.  But new estimates of US recoverable gas reserves were just increased by 20% to 2,384 (close to 100 years of supply at current usage levels) by the Potential Gas Committee, primarily driven by updated data for shale in the Eastern US including the Marcellus.  Although the economics of much of these reserves is uncertain, the amount certainly limits price upside.

Other Factors:

There are numerous other factors driving prices and most remain unchanged.  EPA regulations and LNG export both are highly likely to impact gas demand as soon as 2015.

In addition to impacts of trends in the NYMEX, both regional gas basis and regional power issues are driving power prices:

  • New England – winter gas basis volatility remains a hot topic with forward prices remain elevated as supply challenges due to pipeline constraints and reduced LNG imports expected to continue for the next several years.
  • New York – gas basis will get some relief thanks to pipeline expansions.
  • PJM – this market has seen the least volatility due to impacts of Marcellus shale, but capacity prices are changing significantly and are much higher for some parts of the ISO.
  • ERCOT – summer is around-the-corner and so are concerns about adequate reserves and risk of hitting the higher price caps.  Summer prices and heat rates are high.
  • California – Cap & Trade regulations have changed the market and uncertainty regarding generation from the San Onofre Nuclear Generating Station (SONGS) have ended California run of consistently low prices.

Market Outlook

The first question that we can answer with high confidence is that a repeat of the spring dip of 2012 is very unlikely to repeat.  The change in storage inventories from surplus to deficit is enough to prevent any such market crash.  Beyond storage, the market is “smarter” in 2013 by knowing the price points that require changes in supply and demand.  Power generator and gas producers behaviors have limited both upside and downside in the market.  This limits upside risk and this is apparent as long-term prices have stabilized, but also reduces chances for a big dip.  And the result has been an end to the seemingly never-ending prices declines from 2008 through 2012 and a flat price curve.

So what will trigger price spikes or buying opportunities?  Weather is critical as always, so watch out for the impact of summer heat and hurricanes.  It will be interesting to see whether producer activity picks up due to rising near-term prices.  And consumer demand from the industrial sectors has increased due to the US’s low natural gas prices compared to abroad.  The net effect is apparent in storage activity.  And key an eye on regional gas and power fundamentals and heat rates – watching the NYMEX alone is risky – ask customers in New England after last winter.

For the long-term, EPA regulations, LNG exports, Natural Gas Vehicles and the US economy will remain key drivers of the shape of the forward curve.

Fixed Price Customer Considerations

  • It is very difficult to buy in a rally and many customers are certainly frustrated as they have been waiting in vain for the supposedly “inevitabledip that the spring would bring.
  • Overall, higher prices are inevitable for most. It is possible that a dip is forthcoming, but targets from a month ago must be revised upward because any downward move before will be limited by the storage deficit.  Summer brings both potential risk and reward – so have a strategy to deal with both possibilities.
  • Budgets with year-over-year rate declines may be unrealistic depending on the timing of your previous contract and can result in undue risk by setting targets that are unlikely to occur.
  • Short-term contracts are a strategy to buy time, but do not recognize the possibility that current prices levels will be sustained or could move higher.
  • And long-term prices may still present a good value as they have risen much slower than the near-term.  And the flat forward curve provides opportunity for stable prices.

Consider Layering your contracts

  • Although they do not provide an escape from higher prices, products that allow layering have significant advantage during period of price strength by allowing initial layers to be utilized to mitigate risk with subsequent layers being utilized to take advantage of market dips, if they occur.
  • Hedging strategies will depend on both market fundamentals and customer risk tolerance.
  • Be careful of using prices from 2012 to form price targets except for final layers.
  • Even aggressive customers should be executing layers for the upcoming layers.
  • And initial layers should be considered if not already in place for 2014.
  • Recognize that the flat forward curve may provide significant value for layers into 2015.
  • Utilize seasonal layers to address regional concerns such as winter gas basis spikes in New England and summer price spikes in ERCOT due to heat.

 Customer message:  The overall message is actually the same as a month ago except that prices are higher and likelihood of a big dip in prices before summer has declined.  And this may be difficult for customers to accept since may have had consistent year-over-year declines since the peak of 2008.

    • Year-over-year declines in gas have stopped with 2012 likely being the bottom.
    • Range-bound gas behavior for the near-term with modestly higher prices possible for 2014.
    • Regional fundamentals are causing significant regional risks that must be considered.  If you only focus on natural gas, you are exposed to significant regional risks such as New England winter spikes and ERCOT summer spikes.

What is Load Factor?

Load factor is an expression of how much energy was used in a time period, versus how much energy would have been used, if the power had been left on during a period of peak demand. It is a useful indicator for describing the consumption characteristics of electricity over a period of time. Customers whose facilities are metered for demand can readily determine the load factor for any given month. Facilities billed at highest peak demand during the billing period should avoid periods of increased demand whenever possible.

How to Calculate Load Factor

The load factor percentage is derived by dividing the total kilowatt-hours (kWh) consumed in a designated period by the product of the maximum demand in kilowatts (kW) and the number of hours in the period. In the example below, the monthly kWh consumption is 65,000 and the peak demand is 125 kW. There were 30 days in the billing period.

Load Factor = 65,000 kWh/(125kW x 30 days x 24 hours/day) = 65,000kWh/90,000 kWh = 72.2% load factor

This load factor indicates the monthly energy consumption of 65,000 kWh used by the customer was 72.2% of the total energy available (90,000 kWh) for use at the 125 kW level.

Why is Load Factor Important?

The demand rate structure automatically rewards customers for improving their load factor. Since load factor is an expression of how much energy was actually used compared to the peak demand, customers can use the same amount of electricity from one month to the next and still cause their average cost per kilowatt-hour to drop as much as 40% simply by reducing the peak demand. For instance, a 25% load factor in the summer would yield an average cost per kWh of 13.2 cents, while an 80% load factor would yield an average cost per kWh of 7.9 cents. Remember, this is comparing two months in which the customer used the same amount of electricity (kWh) with different peak demands.

How to Improve Load Factor

Lowering the facility’s peak demand is the primary step to improving load factor and will reduce the amount paid monthly for electricity. To determine the potential for improving load factor, analyze billing records to identify the seasons during which the peak demand is the greatest. In general, the greatest demand for electricity occurs on hot days in the summer. While this implies that a large electric load is dedicated to space cooling, it is not necessarily true for every facility. It is always best to observe operations at the facility to determine what equipment may be causing the peak demand. Once the contributing equipment loads have been identified, determine what can be done to sequence or schedule events or processes in order to minimize the simultaneous operation of high wattage equipment.  Demand controllers can help prevent high demand equipment from cycling on at the same time, which will reduce your demand charges.

To learn about energy terminology, click here.

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