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EnergyWindow MarketElert TM - August 2005
www.energywindow.com
August Elerts
Demand Soars, Prices Jump -
Record-setting demand abounded throughout the country on Wednesday, August 3rd, with more than 60,000 MW in the West and almost 135,000 MW for PJM. Prices generally topped $150 in PJM West with the highest hour for all PJM regions pegged at $719.
Energy Bill Passed -
The House finally passed a compromise energy bill on July 28th that offers billions in tax breaks and subsidies to energy companies as well as funding for renewable resources and new energy technologies. More about the Energy Bill
(www.cnn.com/2005/POLITICS/07/28/energy.bill.ap/).
California -
First you say you do...The CA Supreme Court has overturned a state appellate court ruling last month and will keep a proposition to roll back deregulation there on the ballot for the special election to be held Nov. 8th. More details about Proposition 80 (www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/07/28/BAG4DDUIMV10.DTL).
Boy Scout Motto - Good for Gas?
Some natural gas buyers are following the Boy Scout Motto ("Be Prepared" for those that have never passed Tenderfoot) and shopping now for index contracts so they can quickly fix a price if a hoped-for dip in wholesale price occurs in the late summer/early fall timeframe.
As reported in June's MarketElert, September has exhibited the lowest Henry Hub natural gas settle prices of the year for the past 14 years (the entire history of the NYMEX commodity), and the 12-month futures strips have (at least recently) reflected the relative position of the prompt month's settle price.* But it's difficult to perfectly time an energy purchase to capitalize on what may be a very brief opportunity.
Last year in early September, EnergyWindow ran a cooperative natural gas procurement event called PowerPurchase, with 15 national companies using more than 2 bcf of natural gas annually participating. Those buyers that made out best followed some simple guidelines, among them:
Start with the Basis - Buyers initially sought basis contracts (or more properly NYMEX index) contracts, where the contract is fixed for all unregulated gas charges except the Henry Hub commodity. The graph above shows Columbia Gas of Ohio's historical gas charges in yellow, the NYMEX Henry Hub settle prices in magenta and the difference, or implied basis, in the blue area. Basis charges are not necessarily dependent on commodity prices and in some cases run counter to the price trend. The object is to take out a contract for less than the average basis from the utility (about $2.39/DTH in CGOH) thus saving money from historical rates, while positioning yourself to fix a price if a nice market opportunity presents itself. (Some buyers last year locked in at below $6.00/DTH!)
Choose your markets - You can't do everything at once, and natural gas markets vary by state law and utility regulations. Pick LDCs in markets where your usage is high and the supplier field rich. OH, PA, IL, MD, NJ, and northern CA rank among the most productive natural gas markets.
Shop early (as in now) - Going for a basis contract now that allows you to lock in a fixed rate later on is just plain smart. The sooner you shop, the better your chances of catching the market at the right point.
Quickly Close the Contract - Be ready to close the deal quickly once bids are in. Many opportunities have been squandered by slow or stalled negotiations. Get your legal support and executive approvals ready in advance or prepared to move fast when the prices are in. Many buyers use the NAESB (North American Energy Standards Board, see www.naesb.org) standard Base Contract for Sales/Purchase of Natural Gas contract, familiar to all suppliers, and, if necessary, with marked-ups along with their request for bids.
Have a strike price in mind - After you close your basis deal, be sure you know at what point you feel like you'd be making a wise choice to fix a price. Work with your supplier and/or other advisors to define that as early as possible.
For more on this topic, see the expanded article, "Nice Time for a Dip?" at
www.energywindow.com/press/LateSummerEarlyFallYieldsOpportunities.pdf.
Quick Buyers' Tip
Summer is a good time to organize your contract information, set strike prices, plan for downturns and plot strategies for various markets that bolster your portfolio's diversity.
Companies with Small Facilities can Save on Natural Gas, Too
Learn how by reading the new white paper, "Companies with Many Smaller Facilities Can Obtain Relief from Rising Natural Gas Prices" at
www.energywindow.com/press/SmallerFacilitiesObtainNaturalGasRelief.pdf.
US Postal Service Chooses EnergyWindow for Procurement
Read more about how EnergyWindow helped the USPS obtain savings in 5 states at
www.energywindow.com/press/EnergyWindowAwardedUSPScontract.pdf.
Free Market Data and Information Available Here!
(www.energywindow.com/decisionsupport.shtml)
EnergyWindow has a wealth of free energy data and information available on our site. Simply follow the link above, register if you haven't already and you'll get instant access to wholesale and spot market energy prices, a searchable database of energy-related articles, links to energy career sites, supply reserves, weather, securities information, the MarketElert archives and much more. It's all there, available 24x7 and, best of all, it's free!
Copyright © 2005 EnergyWindow, Inc. All Rights Reserved.
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