Rising Utility Costs Lingering After Winter’s Chill Fades
Bloomberg | March 27, 2014
U.S. consumers got a glimpse of rising future utility bills during the winter as coal- and nuclear-plant shutdowns boosted reliance on natural gas.
Demand for gas, used to heat half of U.S. households and generate 27 percent of the nation’s power, reached records from New York to Los Angeles in January, sending regional prices to all-time highs.
Costs surged as a polar vortex and waves of arctic air caused the coldest weather in 32 years. Prices may rise further next winter as 79 coal-fired power plants close because of stricter environmental rules, while Entergy Corp.’s Vermont Yankee nuclear plant was the fifth to announce a permanent shutdown over the past two years.
“For those willing to write off nuclear and coal, this winter should raise a red flag,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “We are setting ourselves up for a massive rally in natural gas.’”
Households in the lower 48 states spent 5 percent more on electricity and 10 percent more for gas on average this past winter, the U.S. Energy Information Administration estimated in a March 12 report. Consolidated Edison Inc., which owns New York City’s utility, said the typical residential electric bill rose 22 percent to $118 in February from a year earlier.
Natural gas prices are rising even as U.S. production reaches records, thanks to drilling technologies including hydraulic fracturing, or fracking, which make it more economical to tap shale deposits for the fuel. Output at the Marcellus field in the Northeast will reach almost 15 billion cubic feet a day in April, up from 1.49 billion five years earlier, according to the EIA.
Daily power sales in New York averaged $165.24 a megawatt-hour from the end of December to March 24, up 91 percent from a year earlier, based on spot prices compiled by Bloomberg. In the mid-Atlantic states, prices at the benchmark Western hub managed by PJM Interconnection LLC almost tripled, while costs in Texas doubled. Prices this year are highest in Boston at an average $174.45, up 86 percent from a year ago.
Spot gas at the Transco Zone 6 hub serving New York rose to a record $135 per million British thermal units Jan. 21 on the IntercontinentalExchange. Prices have averaged $18.24 so far in 2014, more than double a year ago and the most for the time of year in data compiled by Bloomberg going back to 2002.
In New England, gas deliveries at Algonquin City Gates, which include Boston, surged to an all-time high of $95 per million Btu on Jan. 21 and have averaged $21.29 this year, the most ever for the hub. Gas futures on the New York Mercantile Exchange fell 0.9 cent to $4.402 per million Btu today.
Power and gas price gains in New England this winter may be a snapshot of the future for the rest of the U.S., said Stephen Brick, senior fellow on energy and climate at the Chicago Council on Global Affairs.
About 46 percent of New England’s power came from gas plants last year, up from 30 percent in 2001, according to ISO New England Inc., which manages the state’s grid. No new major gas pipelines have been added to New England in the past 40 years.
Producers in North Dakota are burning off almost a third of the state’s gas amid a lack of pipelines to consuming regions.
The biggest gas price gains were in the Northeast, though pipeline bottlenecks contributed to supply shortages at power plants along the East Coast and in the Midwest, Texas and California, according to regional grid operators.
The weather was the coldest since 1981-82 during December through February in the lower-48 states, according to Commodity Weather Group LLC, which based its estimate on energy-weighted heating-degree days, a measure of weather-driven demand. Gas consumption of almost 3.2 trillion cubic feet in January was the highest ever for a month, Chris McGill, vice president of policy analysis at the American Gas Association, said March 13.
A record number of coal units, 86 generators accounting for 10,308 megawatts of capacity, were mothballed in 2012, while the 79 plants slated for shutdown in 2015 account for another 11,993 megawatts, said M. Tyson Brown, an analyst with the EIA in Washington, who based the estimate on data collected from power producers.
Power from coal-fired plants will account for about 40 percent U.S. electricity generation this year, down from 44 percent in 2009, EIA estimates show. Gas will supply 27 percent, up from 23 percent five years ago.
As many as 13 reactors may be mothballed or retired early, according to IRR Energy data released March 19 in a BNP Paribas SA conference call. The plants account for about 11 percent of U.S. nuclear capacity, EIA data show.
“The market is basically looking at this situation as a weather anomaly,” said Angie Storozynski, a New York-based utility analyst with Macquarie Capital USA Inc. “They aren’t pricing in the tightness of power generation supply sources. A number of these plants won’t be around soon.”
PJM’s installed generating capacity may shrink by 6 percent to 7 percent in 2015 because of environmental regulations, Storozynski said.
While coal and nuclear plants close, gas-fired generating capacity will increase to about 410,000 megawatts by 2016, up 10 percent from 2012, accounting for 35 percent to 40 percent of total U.S. capacity, according to Roshan Bains, director of utilities power and gas at Fitch Ratings in New York.
“As you rely more on natural gas, or one fuel, you will see more and more spikes in power prices,” Bains said. “Rolling blackouts would be more of the norm because of the aggravated fuel supply.”
More Polar Vortex Fallout: Spiking Utility Bills
Natural Gas Intelligence | March 27, 2014
The multiple polar vortices and stubbornly cold weather that has dominated winter weather this year will have another impact even as temperatures turn warmer: higher bills for natural gas and electric utility customers.
Amidst the cold, much focus was cast on skyrocketing energy commodity prices. In late January, Federal Energy Regulatory Commission (FERC) Acting Chairman Cheryl LaFleur said FERC was keeping its eyes on infrastructure and on the markets -- but said natural gas and electricity price spikes brought on by record cold were a sign that the markets were actually working. Last month the Commission said it will hold a technical conference on Tuesday (April 1) to evaluate the U.S. electric grid's performance and review interaction between the natural gas and electricity markets.
While the markets might be working, some utility customers are expected to feel the pinch in their wallets in the coming months.
Akron, OH-based FirstEnergy Solutions is planning a one-time $5.00-15.00 surcharge on the June bills for nearly 900,000 gas and electric customers in northern Illinois to cover a portion of the costs it incurred purchasing higher priced electricity from PJM Interconnection during the polar vortex.
PJM Interconnection, the electricity grid operator for more than 61 million people in 13 states and the District of Columbia, in January experienced eight of the 10 highest winter demand days for electricity in its nearly 87-year history and had an all-time winter peak of 141,312 MW on January 7.
"FirstEnergy Solutions will be passing through an ancillary charge that we received from PJM ," FirstEnergy spokeswoman Diane Francis told NGI. The amount of that charge in January "was significant," but hasn't been finalized by PJM, she said. "PJM still has to go through a reconciliation process, so we probably won't actually know the amount of each customer's charge until April, and then we'll bill them in June."
FirstEnergy Solutions is the competitive subsidiary of FirstEnergy Corp. and the unregulated affiliate of Ohio Edison, Toledo Edison, The Illuminating Company, Penelec, Met-Ed, Penn Power, West Penn Power, Jersey Central Power & Light, Mon Power and Potomac Edison. None of those regulated electric distribution companies is adding surcharges related to the polar vortex to customer bills, multiple sources at FirstEnergy Corp. told NGI.
Chicago-based Nordic Energy, an independently owned company that supplies both natural gas and electricity in Illinois and six other states, is also reportedly billing higher than expected rates due to the polar vortex.
Last month, the Illinois Commerce Commission warned that this winter's brutal temperatures could result in "large increases" to electric rates for customers served by competitive electricity services.
In New England, Northeast Utilities is the largest utility system, serving more than 3.6 million gas and electric customers in Connecticut, Massachusetts and New Hampshire through affiliates that include Connecticut Light & Power, NStar Electric & Gas and Yankee Gas Services Co. Like so many of FirstEnergy Corp.'s electric distribution companies, they are regulated and, therefore, their hands are tied when it comes to passing through higher costs to customers.
"Our customers will be largely insulated from the natural gas price fluctuations we saw this winter in the New England market," a Northeast Utilities spokesman told NGI. "We have a combination of local supplies in storage that we purchase in the offseason, long-term contracts and pipeline capacity that comes from the Gulf region which makes up our supply. For forecasting purposes, we plan for colder-than-normal temperatures and refill our supplies in storage with natural gas purchased in the off season, as we do every year when the cost is lower for our customers."
New York's Public Service Commission (PUC) went so far as to authorize National Grid to provide its customers with a $32 million temporary credit "to offset an unprecedented increase in electric supply costs." That decision was made based on a projected 27% increase in electricity prices in National Grid's Upstate service territory.
But that was only a temporary reprieve for National Grid customers, who will have to cover those higher costs in bills they pay over the next few months.
And smaller, nonregulated companies have been sending out unusually high bills to customers across New England and the Midwest. Customers of Central Hudson Gas & Electric Corp., New York State Electric & Gas Corp., MidAmerican Energy, and others are reported to have seen bills significantly higher than usual.
"Due to high demand for natural gas across the U.S., market prices have increased, causing the March 2014 gas supply charge for MidAmerican Energy's Illinois customers to be approximately 25% greater than the February 2014 gas supply charge," according to Des Moines-based MidAmerican Energy Co. "The cost of natural gas is passed through dollar-for-dollar on customers' bills without any markup by MidAmerican Energy."
After receiving thousands of complaints about higher electricity bills, Pennsylvania's Public Utilities Commission last month opened a proceeding to examine the state's rules, policies and consumer education measures regarding variable rate electric generation products.
Since mid-October, next-day natural gas prices in New England have averaged more than $10.00/MMBtu, with the Algonquin Citygate and Transco Zn 6 NY indexes averaging $15.04 and $11.48, respectively, according to Patrick Rau, NGI director of strategy and research. Gas traded on January 21 on Transco Zn 6 New York reached an all-time high of $125.00/MMBtu, according to NGI’s Daily Gas Price Indexes.
"Those high prices reflect the overall lack of capacity to serve peak winter demand days in New England, although Texas Eastern helped ease the situation somewhat in New York City with its New Jersey-New York expansion, which went into service in November," Rau said. "Of course, those are wholesale prices, and do not include any markup that would ultimately be passed along to tariff gas customers behind the various local distribution systems that serve these areas."
January's brutal, polar vortex-addled weather drove the country's natural gas consumption to a record for a single month: nearly 3.2 Tcf. January 7 was the highest consumption day ever seen at about 139 Bcf. Over the past five years or so, a strong demand day during winter's peak month has typically been about 110 Bcf.
Bitter cold has led to a record-breaking natural gas withdrawal season, bringing inventories to a 10-year low. Working gas levels in storage dipped below 1,000 Bcf in the Energy Information Administration’s report last week, which covered activity through March 14.
Last month the American Public Gas Association asked the Commodity Futures Trading Commission to look into a 10% price spike in the February New York Mercantile Exchange (Nymex) Henry Hub contract January 29.
The number of recorded heating degree days has been driven to unusual highs, according to National Oceanic and Atmospheric Administration data.
FERC in February invoked for the first time its emergency authority under the Interstate Commerce Act to help alleviate "dangerously low" propane supplies in the Midwest and Northeast.
The heavy pull on natural gas and gas storage caused by extended extreme cold across much of the northern part of the United States and Canada prompted the California Independent System Operator (CAISO) last month to issue a conservation alert because of a shortage of gas supplies that underpin much of the state's power generation. CAISO said there were constraints on natural gas supplies coming from the Southwest, the Rockies and Canada.
Natural Gas and Oil Market Update
Natural Gas Prices Up, Supplies Down
MarketWatch | March 27, 2014
Natural gas futures on Thursday gained more ground after the U.S. Energy Information Administration reported that supplies of natural gas fell 57 billion cubic feet for the week ended March 21. The decline came in a bit higher than the market expected as analysts surveyed by Platts forecast a fall of between 50 billion cubic feet and 54 billion cubic feet. Total stocks now stand at 896 billion cubic feet, down 899 billion cubic feet from a year ago and 926 billion cubic feet below the five-year average, the government said. May natural gas was at $4.47 per million British thermal units, up 7 cents, or 1.6%. It was trading at $4.42 before the data.
WTI Trades Near One-Week High as Cushing Inventories Fall
Bloomberg | March 27, 2014
West Texas Intermediate rose to a two-week high after crude stockpiles fell at the main U.S. oil storage hub. Brent gained in London as most Libyan oil fields remained shut.
U.S. futures advanced as much as 0.9 percent after closing above $100 a barrel yesterday for the first time in a week.
WTI for May delivery gained as much as 94 cents to $101.20 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday level since March 11, and was at $101.07 at 12:32 p.m. London time. The contract gained $1.07 yesterday to the highest settlement since March 19. The volume of all futures traded was about 17 percent above the 100-day average. Prices are up 2.7 percent this year.
Brent for May settlement gained 60 cents to $107.63 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $6.50 to WTI.
EIA - Weekly Natural Gas Storage Report
Working gas in storage was 896 Bcf as of Friday, March 21, 2014, according to EIA estimates. This represents a net decline of 57 Bcf from the previous week. Stocks were 899 Bcf less than last year at this time and 926 Bcf below the 5-year average of 1,822 Bcf. In the East Region, stocks were 419 Bcf below the 5-year average following net withdrawals of 39 Bcf. Stocks in the Producing Region were 378 Bcf below the 5-year average of 754 Bcf after a net withdrawal of 15 Bcf. Stocks in the West Region were 129 Bcf below the 5-year average after a net drawdown of 3 Bcf. At 896 Bcf, total working gas is below the 5-year historical range.
NYMEX Natural Gas Week-to-Week Price Change
Natural Gas Futures - Five Year Price
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