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EnergyWindow MarketElert TM - October 2005
www.energywindow.com
October Elerts
Texas -
Based on rises in the wholesale cost of energy, all major TDSPs in Texas have requested fuel cost increases of 46-50% and more. Final approval from the Texas PUC is expected on the 28th.
Massachusetts -
National Grid (Mass. Electric Co.) has virtually doubled their basic service rates year to year, with prices now in the $110-$170/MWH range for the next three-month period. This follows Western Mass Electric and NSTAR's earlier hikes of up to 49%.
Energy Prices - About to Overwhelm?
The unprecedented rise in wholesale energy prices (well underway even before this season's hurricanes came along) is creating what is tantamount to a silent tsunami headed toward our economy. Prices for natural gas have risen about 60%* year-to-year. Electric utilities in Massachusetts, New Hampshire, Maine and Texas have already applied for and/or received increases in their generation rates of 50% and more, and others will soon follow. Wholesale energy prices have risen 25% in the past two months alone (our trends graph gas price scale has gone from a maximum of $9.00/MMBTU in August to $13.00 this month).
Businesses and consumers alike will soon be paying far more for their retail energy without receiving any additional benefit. Few experts think the rate of increase seen lately can be sustained without a severe recession, which would reduce demand and lower prices as a result. And few experts can suggest any other force in the next 3-5 years that is likely to lessen the supply and demand tightness that is increasing prices and decreasing the impact of short-term effects, like storage volumes. In terms of energy procurement, buyers all over the nation are beginning to shift their thinking from one of savings to one of triage.
What can break this upward trend, and when will it occur? Good question and one with as many answers as experts. Perhaps a more practical one is how can a buyer use the current situation to their benefit. Three major trends need to be understood when considering an energy strategy today, namely:
A clear upward trend in natural gas prices over the past two years (as indicated by the dotted red line in the Trends II graph) above
The backwardation in the futures markets (lower and lower prices as time moves forward) indicated by both the dark purple and dotted blue lines in Trends II above
Physical issues that have forced natural gas prices higher, such as the anticipated growth of electric generation from natural gas, the depletion of our most easily gathered and driest reserves, the declining output from older wells and the lack of LNG imports. These issues are also overwhelming the impact of short term issues (storage, seasonality, etc.) on prices
The implication of these trends is that national buyers with a portfolio of facilities in diverse markets need to consider longer-term fixed prices, not just for the potential savings, but also as a process by which to mitigate the current upward trends, capitalize on market backwardation and limit the effect of predicted tightness in supply. For more on this topic, see our expanded article.
*NYMEX Henry Hub 12-month strips on 10/20/04 and 10/20/05
Quick Buyers' Tip - Divide and Conquer?
Customers that have a significant percentage of load in a specific territory and are considering longer-term fixed pricing may want to consider procuring portions of their portfolio at several different times as a way to diversify the risk that markets will come off at any given time. This can be done by splitting up the load and getting fixed prices at different times in advance for the same term, or by letting some portion of the load float on wholesale indices until fixing at various times (like dollar-cost-averaging). Remember, though, that upward trend line is not a momentary phenomenon, and there is also risk in waiting.
Energy: A New Ballgame
Deregulation and price fluctuation make managing energy costs more challenging, but there are still savings to be found. (http://www.energywindow.com/press/363328.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!
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