MA Solar Renewable Energy Certificate (SREC) Auction

REC Solar Energy from Solar PanelsFor the second time in less than a week, Massachusetts’ auction of solar renewable energy certificates (SREC) failed to clear on Wednesday, setting the stage for a third and final round. The auction is scrapped when bidding volume is less than the number of SRECs for sale. There are 38,866 SRECs being offered.
The Department of Energy Resources runs the SREC auction as a last-resort to sell unsold SRECs in years when annual supply is greater than demand.

This is the first time that the auction is being held because in 2010 and 2011 the SREC market was under-supplied. In 2012, supply exceeded demand, prompting the DOER to run the auction. The next round is scheduled for Friday. And if that fails to clear, then the SRECs will be returned to the sellers.

The DOER included a last-resort auction as a way of providing some price support to SRECs even when supply outpaces demand. Other SREC markets – without similar mechanisms in place – have typically seen prices crash following an installation boom and stay low until demand catches up. The auction has a fixed price of $300/SREC for buyers and $285/SREC for sellers. There is a $15 administrative fee.

Compliance entities are not required to participate, but the auction has been designed to try and attract buyers. SRECs purchased through the first round have an additional two years of eligibility. They can be used by compliance entities in 2013 or 2014. In the second round, the shelf life is extended through 2015. Longer eligibility increases the attractiveness of the underlying SRECs assuming parties view the $300 price tag as a good investment, calculating that the spot market will eventually be even higher.

Now that the first two rounds have yet to clear, the DOER will conduct its third and final attempt on Friday. On top of the extended shelf life, buyers face another incentive to participate because the DOER will raise the 2014 compliance requirement by an amount equal to the auction volume – 38,866 SRECs – if it does not clear.

A single SREC represents one MWh (or 1000KWh) of electricity.

For Massachusetts customers, this subject is important since the cost of SRECs is a part of the ancillary fees charged to customers.  A fixed price electricity contract, as long as it includes all ancillary fees, will protect the customer from the rising cost of SRECs.  Read more at the mass.gov website.

PECO Price to Compare to Rise Nearly 40% on June 1 to 9.38¢ per kWh

The PECO Price to Compare for C&I customers in the General Service (GS) 100-500 kW rate class will increase nearly 40% on June 1.

Starting June 1, 2013, the General Service (GS) 100-500 kW rate class Price to Compare will increase to 9.38 cents per kWh, from 6.81 cents per kWh.

The General Service (GS) <100 kW rate class Price to Compare will decrease slightly to 9.24 cents per kWh, from 10.73 cents per kWh.

The Primary Distribution (PD) 100-500 kW rate class Price to Compare will increase to 8.42 cents per kWh, from 5.88 cents per kWh.

The Primary Distribution (PD) <100 kW rate class Price to Compare will decrease slightly to 8.27 cents per kWh, from 9.74 cents per kWh.

Click here to see the details on the PECO web site.

New York Capital Zone Electric Rates Nearly Double in Jan and Feb 2013

Nimo Pricing

Electricity customers in the  National Grid NiMo Zone F (Capital Zone) have seen their rates skyrocket in Jan and Feb  from ~$0.06 to over $0.12 per kWh.

In the 2012 Tariff Filing Letter, the proposed action states that:

“The Public Service Commission is considering whether to approve or reject, in whole or in part, revised tariff leaves filed by Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara Mohawk”) that would increase the Company’s electric and gas base delivery revenues by $130.7 million and $39.8 million, respectively, effective April 1, 2013, and make other tariff amendments and accounting changes.”

Customers in Upstate New York should understand that fixed rates are in the $0.055 to $0.065 range for 12 months.  You can completely eliminate price fluctuations by contracting your electricity supply instead of dealing with the volatility of monthly pricing.

To obtain a fixed price electricity price quotation, contact Better Cost Control.  We represent all the suppliers, so you can be assured of the lowest prices with the best contract terms.

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.

Illinois Electric Customers Embrace Competitive Electricity Suppliers


customersIL
Participation in electricity residential consumer choice programs increased faster in Illinois in 2012 than in any other state—an exception among retail electric choice programs that have had mixed success. Under these programs, electricity distribution providers still operate and maintain the infrastructure to deliver the electricity and coordinate billing: these costs constitute the “distribution charge” on a customer’s bill. The third-party suppliers arrange for the supply of electricity, and it is this “commodity” or “energy” part of the bill where customers can potentially gain savings or eliminate price flcutuations. The driver was the introduction in Illinois of a program that allows municipalities and counties to contract in bulk for electricity supply from a variety of potential providers. Third-party power providers leveraged low wholesale power rates during 2012 to offer steep discounts on electricity.

Retail choice programs, which exist in some but not all states, let electric power customers choose among competitive electricity suppliers. Some states show growth in their programs, while participation in others lags, or is favored by industrial and commercial customers rather than residential customers.

Preliminary 2012 data collected through November from a sample of U.S. utilities show that over 1.3 million out of 5 million residential electric customers in Illinois switched their energy supplier from their local Investor-Owned Utility, or IOU, to a third-party power provider between January and November. In December 2012, the City of Chicago’s nearly 1 million residents joined the growing list as Mayor Rahm Emanuel approved a contract with Integrys Energy Services (Chicago’s contract is not included in the chart above).

The chart above shows the dramatic rise participation in retail choice programs with the number of residential customers on delivery-only service, as reported by electricity delivery companies (here, IOUs). The numbers are dominated by Commonwealth Edison customers, whose territory covers most of northern Illinois; Ameren covers most of the remainder of the state. Third-party energy suppliers in Illinois include: Ameren Energy Marketing, Direct Energy Services, First Energy, and Integrys.

In 2009, Illinois joined five other states (Massachusetts, Ohio, Rhode Island, New Jersey, and California) in enacting legislation allowing communities and municipalities to negotiate with power providers on behalf of their citizens, for residential and small commercial customers. Nonetheless, until recently, participation in Illinois retail electric choice programs was low. The situation changed beginning in late 2011 due to a combination of revisions to the Illinois community aggregation law, outreach programs aimed at easing the aggregation process for communities, and a steep drop in wholesale power prices. Third-party power providers were able to immediately offer significantly lower rates than IOUs, whose rates are less responsive to power market fluctuations because of regulatory rules.

In September 2011, Oak Park became the first Illinois municipality to sign a contract, securing 30% savings on electricity commodity costs for its residents. Two months later, other communities passed referenda to participate, and the trend continued to increase through 2012. The Illinois Commerce Commission (ICC) lists467 Illinois communities known to be participating in or pursuing community aggregation programs. Of those that have chosen suppliers as of Jan 14, 2013, the ICC reports the average electricity rate as 4.5 cents per kWh. In comparison, the default rate from the Illinois Power Agency is currently 8.1 cents per kWh. It is scheduled to drop on July 1, 2013, but is expected to remain above 6 cents per kWh.

However, it is possible that this large disparity in costs between regulated IOUs and third-party electricity suppliers could reverse itself—if IOU rates are redrawn preceding a significant increase in wholesale power prices, the third-party suppliers may not be able to undercut IOU rates.

While price is usually cited as a main concern, third party power providers may offer options the IOU does not: for instance, “green power” (buying their electricity from renewable generators) or cleaner power (one option from Integrys excludes electricity from coal-fired power plants). However, consumers purchasing from third-party suppliers cannot be on a time-of-day rate—that option is only offered through the IOU.

The data cited above are collected on the monthly survey Monthly Electric Utility Sales and Revenue Report with State Distributions (Form EIA-826), which collects sales, revenue and customer count data from a subset of all U.S. retail electric market participants. Data collected for Illinois residential customers show participation rates in retail choice programs in November 2012 are 38%, up from 8% in January 2012.

Electricity and Gas Energy Market Update

Natural Gas PipelineAfter reaching a recent high in late July, NYMEX gas prices fell for the first two weeks of August as weather moderated.  Prices have stabilized, but remain low overall.  One big customer question is whether there will be a fall dip in prices similar to 2009, 2011 and 2012.  Understand that electricity prices are influenced, in great part, by natural gas prices.

NYMEX Prices as of 8/22/12

Prompt (September):    $2.82 (we are down today due to bearish storage report)

12-Month Strip                 $3.31  (this is used for pricing 12 month contracts)

Cal 13                                    $3.54 (Calendar year 2013

Cal 14                                    $3.94

Cal 15                                    $4.15

Reasons for market movements

NYMEX prompt peaked on 7/31/12 at $3.27.  Calendar Strips also hit highs since February on or near that date.  Anemic storage injections and hot weather were key drivers.Note that through July 31st, this summer was hotter than last and 2012 was the hottest year on record.

    • However, August weather has been much milder and demand has dropped, leading to lower prices.
    • Prompt gas fell swiftly from $3.25 to near $2.75 by August 10th, but has been unable to sustain a move below $2.70 due to technical support and coal-to-gas switching.
    • Natural gas storage inventories remain on pace for a new record by the end of the injection season, but the likelihood of a storage glut has greatly diminished by below normal injections. Weekly injections have averaged 23 Bcf/week less than a year ago thereby reducing the surplus from 888 Bcf to 442 Bcf compared to a year ago.  At this pace, inventories will finish the season well below estimated national capacity of 4,100 Bcf.  (see storage chart for more detail and graphical illustration) .  Remember that based on national capacity of 4,100 Bcf, the surplus must decline to at least 248 Bcf since last year reached 3,852 Bcf
      • Last week’s storage report was larger than expected and prices are testing $2.70 support again.
  • Rig Counts – natural gas rig counts are down 45% versus a year ago and horizontal rig counts (mostly shale) are only up by 1%.  Production is relatively flat over the last few months – this may be due to improving shale technology, a backlog of wells that have been completed but not connected to the pipeline grid and the lag impact of placing rig versus starting production.  And rig counts are not always a reliable metric, but they are a trend indicator and lead to concerns about ongoing supply growth into 2013-14.
  • Coal-to-gas switching peak in the spring when gas prices were below $2.00.  For the first time since tracking began in the 1970’s, gas fired generation matched coal fired generation in the US supply stack.  This was due to economics – not EPA.  We expect ongoing strong switching, although not as much may be needed due to the shrinking storage surplus.  This is a factor that has allowed prices to move into the $2.75 – 3.25 range.  In the long-term (2015), EPA Mercury rules will be large driver of coal plant retirements in addition to low gas prices.
  • Hurricane season – the season is less of a concern as US supply migrates onshore due to shale gas, but there is still some risk.  So far 2012 has been quiet, but we are now in the peak of the season until mid-October.  Overall expectations for this season are not for an active season. Tropical Storm Isaac is currently in the Caribbean and is a threat to Florida and the Eastern Gulf of Mexico.
  • Where will prices go from here?
    • Short-term – there is still potential for a fall dip, but we do not expect new lows ($1.90 in April) due to shrinking storage surplus and reduced chance of a storage glut.  Breaking through $2.70 gas support is a first step and will depend on coal-to-gas switching and short-term weather.
    • Long-term – Prices for 2013 and beyond are likely to move directionally with the prompt month, but any extreme dip will have a muted impact on long-term because weather’s impact is mostly on near-term and there is limited ability to carryover storage surplus from 2012 to 2013 due to limited capacity.  Going into 2013 with a smaller storage surplus, flat or even declining gas production, and increased demand due to coal-to-gas switching all point to higher prices.  So outside of weather, the fundamentals are bullish compared to last year.  Furthermore, winter 11-12 was the warmest on record and is unlikely to be repeated.  This does not mean that prices will skyrocket as shale gas still limits upside, but it does point towards higher prices in 2013 compared to 2012 and the possibility that we’ve seen the bottom.
    • Power – gas relationships remain critical, but heat rates are up nationally over the last year and this relationship has eroded.  However, heat rates are down over the last month and this is worth noting to customers.
    • What else?
      • EPA Regulations:  Just last week the Cross States Air Rule (CSAPR) was vacated.  This is a big win for coal and will, at minimum, delay implementation for a few years.  However, market impacts were modest as gas prices did sustain declines after the announcement and some regional heat rates are down.  ERCOT and PJM are the markets most impacted – stay tuned for more information.  The bigger EPA rule is MATS (Mercury and Air Toxics Standards) and this rule is unaffected and has a much broader impact starting in 2015.  Most coal-to-gas switching in 2012 has been due to gas versus coal economics and this has not changed.  Please reach out to the Market Intelligence or Regulatory Affairs team for more information.
      • Message to Customers:
          • If you are looking for a fall dip, it is possible, but you should not expect new market lows due to changing fundamentals over the summer.  It is also difficult to time this dip (September in 2009, October in 2010, while prices fell into winter in 2011 due to mild weather).
            • So customers must ask:  Will there be a dip?  When will it happen?  And how deep?
          • For long-term, it is still not time to sell fear as prices should remain at levels low based on long-term history (great value), but it may not be a simple as waiting for the last minute and locking in a year-over-year decline.  There is clearly risk that 2013 and 2014 prices will go up from here and even if they do fall, they may not fall as low as 2012.  So be careful setting targets.
          • For customers that expect never-ending price declines, a key point is that we did see market participants react to low prices in 2012.  Producer cuts and increases in gas generation demonstrated that market participant will react to low price in a way that pushes prices higher. So outside of abnormal events such as the record-warm winter, the warm does have a bottom.
          • For index product customers, there is still great value in the index markets and customers should continue to participate.
          • And gas-power correlations remain critical, but not as strong as in the past so be careful basing strategy on gas along.  There are many regional issues that I have not covered in this email.

        Did you find this posting a bit challenging to understand?  If so, this is one more reason you will benefit from an electricity/energy broker such as Better Cost Control.

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.

Why do electricity and gas contracts have early termination fees?

Many people ask why electricity and gas contracts have early termination fees?  There is a very good reason.  First look at it from this perspective:  the energy supplier is guaranteeing that your contracted price will never rise, no matter what, even if a disaster strikes the energy supply infrastructure.  They are protecting themselves with a financial instrument that requires that you buy the agreed amount of energy during your contract term.  If you don’t…as in early termination…they still have a financial obligation to make good on using that energy.  Would it be fair, from a purely ethical perspective, to walk away from that transaction?  If prices in the market go down slightly and you find your contract price a bit higher, remember: you are protected from price increases for the term of the contract.  You will also find that over the entire life of the contract, you will likely come out ahead and save money.  Another analogy I like to use:  if you pay $10,000/year for fire insurance on your business, do you feel like you wasted your money if you didn’t have a fire?  Of course not!  Contracting electricity and gas is like getting an insurance policy to protect your budget!  You have absolutely no way to accurately budget your electricity and natural gas costs without a supply contract.

If your contract does not have any cancellation fees, believe it or not, it probably doesn’t do a very good job of protecting your price exposure.  You can’t have your cake and eat it too, as they say!

Want to learn more?  Call us!

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.