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.

Making Sense of the Present Electricity Market

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  • Regional issues are ruling the day, when it comes to understanding today’s electricity market– gas & power correlations remain critical, but we continue to see increased frequency of separation.  There are fundamental factors that are behind this trend:
    • Northeast basis – too much info on this to put in this blog posting, but the short-story is that the region is short gas pipeline capacity and this year’s cold temps and pipeline constraints have caused huge gas spikes to New England (several days in $20-30 range) and to a less extent New York Zone 6 (>$20).  Day-ahead power has moved with gas with some spikes near $200/MWh. This is impacting long-term prices.  Unfortunately, the pipeline constraints are unlikely to be resolved in the near-term.
    • ERCOT Resource Adequacy – this issue is also not going away as ERCOT is expected to remain below is target for reserve margins and the increased offer caps are not expected to resolve the problem.  So do not expect summer premiums to disappear and there will be ongoing discussion on solutions to the problem.  Regulatory news and summer price spikes will both impact forwards.
    • PJM Capacity –the wholesale energy prices in the market remain low, but capacity prices vary greatly within the ISO – rising for most of the West and falling for the East over the next 2 years with certain areaa having exceptional spikes (ATSI).  Note that we have updated capacity charts that clearly illustrate this trend.
    • California Cap & Trade & SONGS outage- ongoing strength in forwards as Cap & Trade has been implemented and there is still tremendous uncertainty regarding SONGS, which has been shut down for almost one year.
  • Customer message:  The overall message is straightforward, but may be difficult for customers to accept since many have had consistent year-over-year price declines since the peak of 2008.
    • Year-over-year declines in gas have stopped with 2012 likely being the bottom.
    • Rangebound gas behavior for the near-term with modestly higher prices possible for 2014.
      • It makes sense that natural gas futures are higher than a year ago, but below long-term averages.  And we expect this to continue.  So don’t count on another spring dip – it is very unlikely to see a repeat of April 2012.
    • Both upside and downside are limited by coal-to-gas, production economics, storage, etc.
    • 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.
  • Regional issues may provide a better rationale for customers to contract their electricity now.

Ohio PUCO accepts results of FirstEnergy auction

COLUMBUS, OHIO (Jan. 23, 2013) – The Public Utilities Commission of Ohio (PUCO) today approved the results of FirstEnergy’s sixth wholesale auction that will ultimately determine its retail generation service rates through May 2016.

During the 17-round auction, held Jan. 22, 2013, four competitive suppliers submitted winning bids for the opportunity to provide electricity to FirstEnergy customers. The auction resulted in an average clearing price of $0.05917 per kilowatt hour for the delivery period June 1, 2013 through May 31, 2016. The results will be blended with previous auctions, and four upcoming auctions to establish retail generation rates from June 1, 2013 through May 31, 2016.

CRA International served as the independent auction manager, and Boston Pacific Company, a consultant retained by the PUCO, monitored the auction process. The names of the winning bidders will remain confidential for 21 days.

Customers continue to have the opportunity to consider competitive options to meet their electricity needs, including shopping for an alternate supplier or joining a local government aggregation group. More information about how to choose a supplier is available at www.PUCO.ohio.gov. The PUCO’s Apples to Apples rate charts provide customers with a snapshot comparison of current electric supplier price options and contract terms. The PUCO updates the charts on a regular basis and verifies each supplier offer to ensure accuracy.

AEP Ohio Increased Rates Approved…But Good News for Businesses

American Electric Power (AEP) new rates have been approved at a 6.3 percent increase.  To put that into perspective, the average household will be paying approximately $8 more every month under the AEP electric rates.

AEP wasn’t the only company to increase their rates.  The Public Utility Commission of Ohio (PUCO) has devised a plan in attempt to balance the field of sharply divided parties.

The 6.3 percent fell within AEP’s estimated 5 to 7 percent increase that they had previously projected.  The new electric rates that take effect next month are part of a complicated price planning strategy as AEP adapts to a competitive market.  The president of AEP Ohio, Pablo Vegas, stated that the company has been working very hard to minimize the impact on customers electric bills as they continue to transition to this new market model.

It is not just households that are seeing a rate increase.  Businesses with AEP as their electric provider will be impacting as well.  However, businesses will be happy to hear drastic improvements from last years winter rates.

Small business in the region will only face a 1 to 4 percent increase from the current rates.  Last winter, some experienced a 40 percent increase from their previous period electric rates.  The change was so drastic that PUCO had to dispose of those winter rates and revisit the process.

This year the rate change will be substantially lower; small businesses in the General Service 2 rate class will face a 1 to 1.4 percent increase, medium-size businesses in the General Service 3 rate class will see a 3.6 to 3.7 percent increase, and those large factories in the General Service 4 rate class 1.9 to 3.6 percent increases.

As of this writing, prices from a variety of Better Cost Control competitive suppliers in Ohio are lower than the new rates.  We recommend using an electricity broker to obtain the best prices and contract terms.

To learn more about a fixed price electricity contract to protect your company from price fluctuations,  contact us via email or call 800-454-0027 x150.

Ohio Residents Lock Electric Rates for the Next 7 Years

Within the next couple weeks, over 600,000 households in Northeast Ohio will receive an offer to lock in the price of electricity at 6.75 cents per kilowatt-hour for the next seven years.  The Northeast Ohio Public Energy Council (NOPEC) has been working with FirstEnergy Solutions (FES) to enable this contract offer that is considered unheard of in the industry.

An additional 100,000 residents not served in the NOPEC communities will receive a similar offer from FES for 7 cents a kilowatt-hour for seven years.

Executives at NOPEC say that customers who accept the offer will ultimately save on their electric bill.  Chuck Keiper admits that for the first couple years the rate may be fractionally higher, but with a projected increase of power price in 2015 the residents will save for the remaining five years on the contract.

The benefit of this unconventionally long contract term for consumers is to avoid potential rate increases and eliminate the risk of a volatile market.  Many competitors provide more attractive pricing, however, the contracts only accommodate for a maximum of two years.  Apples-to-apples comparisons of electric rates from other Ohio utilities, including American Electric Power, Duke Energy and DP&L, are posted on the Public Utilities Commission of Ohio’s website.

To remain competitive, NOPEC and FES currently offer a percentage discount for 7% or 6% respectively off the price to compare.  And to alleviate some of the hesitation, NOPEC has a cancelation fee within the first three years of only $75 and no cancelation fee if you switch to another NOPEC contract.  FES’s cancellation at any time is $300.

The energy market is maturing and competition is condensing.  This offer is an attempt for NOPEC and FES to win back their customers from competitors.  Still in discussion between the companies are two and three year fixed-price contracts, all green power contracts, small business discount rates and public institution rates.

As of this post, many of Better Cost Control’s suppliers in Ohio can offer more competitive electric rates.  Submit a quotation request form or contact us for more information via email or call 617-332-7767.

Duke Energy Files for Electricity and Gas Rate Increases in Ohio

Duke Energy Ohio filed for rate increases that would raise  electric and gas bills for customers in southwest Ohio.

On Monday, the Cincinnati-based utility filed applications with the Public Utilities Commission of Ohio, asking for approval of an $86.6 million increase in the electric rates and a $44.6 million increase in gas rates. Duke wants the rate increases to take effect in January 2013.

Under the proposals, commercial and industrial customers would see about a 4.6 percent increase in electric rates and about a 3.7 percent increase in gas rates.

The Office of the Ohio Consumers’ Counsel has filed to intervene in the case on behalf of consumers, but is still reviewing details of Duke’s applications before commenting, Consumers’ Counsel spokesman Marty Berkowitz said.

The proposed electric rate increase would affect 690,000 customers in all or parts of Brown, Butler, Clermont, Clinton, Hamilton, Highland, Preble, Montgomery and Warren counties. The proposed gas rate increase would affect 420,000 customers in all or parts of all those counties with the exception of Preble.

Duke Energy spokesman Jason Walls said the increases would allow the utility “to begin collecting from customers the investment it has already made to improve the electric and gas systems.”

Duke has invested $310 million in projects to improve electric service reliability, according to the utility. The electric rate increase also is needed because of increases in general operation and maintenance costs for the distribution system and because of a decline in sales volumes since 2009.

The natural gas rate increase is needed to help reimburse the utility for the more than $500 million it invested in upgrading pipes and other parts of the gas distribution system at a time when the volume of natural gas sales had declined and for the more than $65 million needed to clean up two former manufactured gas plants.

Duke Energy will have 60 days to provide supporting testimony before the Public Utilities Commission staff makes its recommendation. Time also will be allowed for any objections to be filed and for public hearings before the commission makes its decision. The commission has 275 days from the time of the application to make its decision.

Duke Energy Ohio Intends to Increase Distribution Rates for Early 2013

Yesterday, Duke Energy Ohio has filed a notice with the Public Utilities Commission of Ohio (PUCO) with the company’s intention to increase distribution rates for electric service customers by $86 million and natural gas customers by $44 million.

The decision will be made at a hearing this mid-July, and if approved commercial and industrial customers will see an average price increase of 4.6% for electricity and 3.7% for natural gas.  These prices are to be in effect starting early 2013.  The increase in distribution rates will accommodate for the company’s recent investments in projects to improve the reliability of the distribution system and generation processes.

Duke officials said that even if this testimony is approved by PUCO, on average consumers would still be paying less for their electricity and natural gas.  This is due to the pressure of the market causing a trend of lower market prices.

Judie Janson, Duke Energy Ohio president, went on to add that Duke customers would even remain among the lowest paying customers in the state.  As of this writing, prices from a variety of Better Cost Control competitive suppliers in Ohio are lower than the prices that will be offered by Duke Energy.  We recommend using an electricity broker to obtain the best prices and contract terms.

To learn more about a fixed price electricity contract to protect your company from price fluctuations, contact us via email or call 800-454-0027 x150.

AEP Ohio to Continue Blocking Retail Customers from Lower Market Prices

Just yesterday, the Public Utilities Commission of Ohio, aka PUCO, made the decision to allow AEP Ohio to continue to block its retail customers from receiving lower electric rates available from the suppliers in the competitive market.

After yesterday’s ruling, AEP Ohio remains the only utility provider in the state that can effectively restrict any of its customers from obtaining lower market based capacity prices.  These unprecedentedly low rates advocate a competitive market, which helps commercial customers save money.  But for AEP Ohio clients, they will have no other options than the set prices of their provider, which are substantially higher than what the current market is providing.  To put things in perspective, AEP Ohio will be able to charge a rate of Capacity Charges that is as much as seven times the current market-based rate.

In Ohio, there has been a trend of reducing utility rates due to the competitive environment that has developed between providers.  Last period, providers such as FirstEnergy Ohio and Duke Energy Ohio reduced their prices 17% for its utility customers.  This ruling that PUCO has made enables AEP Ohio to defy that competition and monopolize their rates and customers.

AEP is one of the nation’s largest electric utilities and owns the largest electricity transmission system.  President and Chief Operating Officer, Pablo Vegas, stated that the PUCO decision was an appropriate and necessary one.  He argues that AEP Ohio is ready to embrace the competitive market, however, must have permission to temporarily charge higher rates in order to accommodate for the considerable investment they have to make in order to transition their plants away from coal-burning generators.

A number of Better Cost Control’s suppliers in the state of Ohio offer substantially lower rates than those of AEP Ohio.  Having a professional energy advocate can protect you from a volatile market and save you money.  To learn more about how please contact us via email or call 800-454-0027 x150.

PJM Electricity Interconnection Organization’s capacity locked in at price of $136 per MW

PJM’s capacity auction secured a record amount of new generation, demand response and energy efficiency resources for the 2015/2016 delivery year to keep the grid reliable as dozens of coal plants retire and are converted to natural gas.

The auction, known as the Reliability Pricing Model (RPM) auction, procured 164,561 megawatts (MW) of capacity resources at a base price of $136 per MW, compared to the price last year of $125.00 per MW.

Capacity prices were higher than last year’s because of the retirement of existing coal-fired generation, due to environmental regulations, which go into effect in 2015.

PJM serves 60 million people in 13 states in the Mid-Atlantic and Midwest and the District of Columbia. Capacity prices were higher in northern Ohio and the Mid-Atlantic region.

For the Mid-Atlantic, PJM said capacity will cost $167 per megawatt.

The Mid-Atlantic region includes utilities served by Pepco Holdings Inc’s Atlantic City Electric, Delmarva Power and Pepco; Exelon Corp’s Baltimore Gas and Electric and PECO; FirstEnergy’s Jersey Central Power and Light, Metropolitan Edison and Pennsylvania Electric; PPL Corp’s PPL Electric Utilities, Public Service Enterprise Group Inc’s Public Service Electric and Gas; and Consolidated Edison Inc’s Rockland Electric.

In FirstEnergy Corp’s northern Ohio territory, PJM said the capacity price will be $357 per megawatt due to the high number of power plant outages in that area.   With the exception of the AEP territory, Capacity is a fairly small component of the retail price of electricity, and the cost of capacity at the retail level tends to be averaged out over several years.

 

Dayton Power and Light announces plans for new rates

Dayton Power and Light, at their technical conference, announced that its next rate adjustment will be based on auctions to be held in October, 2012 for the electrical load to be served starting in January 2013.  This will be followed by  subsequent auctions in March 2014 and March 2015.

The Powerpoint presentation can be viewed here.

Why long term electricity contracts in PJM service area make sense

The inexperienced electricity buyer looks just at the price and goes with the lowest price. In today’s market (April 2012), shorter term contracts have the lowest price. But taking this approach can be short sighted. Why is that the case? First off, when you want to get a new contract in a year, your price will likely be a lot higher. As long as you know that, fine.  But there is more to understand.

In the PJM service area, one component of your fixed price are future capacity rates and trends. We are encouraging our customers to consider the longest term possible, up to a 24 month term, up to the period ending May 2015, to blend low energy prices against higher capacity rates. Locking in a longer term will protect you from the capacity price increases, which are a known number. So even if the energy cost is the same, the electricity prices will rise because of the rising capacity charges.  The higher capacity charge from next year is averaged into the present cost, which is one reason a longer term contract costs a bit more.  But when you look at your total cost over the 24-month period versus what they would be otherwise, based on the direction of the economy, you will win big overall and protect your budget.

PJM Capacity Cost Component

· June 2012/May 2013 $131.48 Per MWH
· June 2013/May 2014 $227.11 Per MWH
· June 2014/May 2015 $136.50 Per MWH
· June 2015/May 2016 Unknown at this time

· Capacity rates (set three years in advance by PJM) have increased to over $227 level for your next capacity rate contract term

· Recovering economy should keep capacity rates at least to the 2014/2015 level when PJM conducts next auction in May ‘12

· EPA’s plan for MAT (Mercury Air Toxin) rules have driven several generators to close 50’s vintage power plants due to high compliance cost coal plants exerting upward pressure on next auction. Less coal generation means higher prices, but cleaner air. Another reason to lock in a longer term contract.

Capacity charges are typically calculated based on the difference between a customer’s peak energy use during a billing period and their nominal use (normal or hour-to-hour use) during the same period. If the customer expects to have substantially more power available to them than they actually use, then a demand charge is applied to cover this difference.

Demand charges are not a means of gouging customers by charging for unused energy. Instead they are a means of insuring that customers can have larger-than-normal supplies of energy available to them at a moment’s notice.

Keep this information in mind when deciding what contract length you want. Take a long term view and next year you’ll be smiling at the decision you made. Consider the slight increase that you will pay in the short term your price for insurance against rising prices. Insurance costs money. Would you go without fire insurance because it costs money and you have never experienced a fire?

New AEP Ohio rate plan addresses concerns

American Electric Power says a rate proposal the company is submitting to state regulators eliminates several charges that delivered high bills to business, churches and schools.

The company will present the plan Friday to replace the one that was  rejected last month by the state Public Utilities Commission. It calls for larger business customers paying more and restores a discount for all-electric homes.

Small business rates would increase 2 to 5%.

The earlier plan had been approved by the Utilities Commission and went into effect in January. But commissioners revoked the plan after complaints.  Also at issue has been the fee the Columbus-based AEP can charge customers and competitors when users switch to another electricity provider.