PJM Statement on Winter 2014 Cold Weather Events
The following is a press release from the Pennsylvania-New Jersey-Maryland (PJM) power pool. You question; what does it mean to me? In a word; a law suit!
As the press release explains; winter caused price spikes for marketers and power plant operators which was passed through to our customers. Energy marketers (Realgy) and power plant operators had to buy natural gas at the settlement and spot prices imposed by utility and pipeline operators. In many, many cases the utility settlement procedures imposed record setting prices.
This communication is a warning; the costs that Realgy incurred and passed through as a result of this winter’s weather will be with us a long time as they get examined. FERC may get involved to understand how the prices got so high and if they were appropriate.
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PJM Statement on Winter 2014 Cold Weather Events
Due to unprecedented cold weather conditions during the winter of 2014, PJM has been apprised of specific operational and gas procurement challenges which certain members faced during the extreme cold weather. The information gleaned from members’ operational experiences as well as PJM’s own examination of system conditions will enable PJM to share with stakeholders lessons learned from these events and allow for stakeholder review of possible improvements to PJM’s processes and market rules in this area.
Specifically, PJM has learned that several members may have incurred significant gas balancing losses in the course of operations during these unprecedented cold conditions.
Where appropriate, PJM credits members for costs incurred and allocates the associated costs according to the terms and conditions of its governing documents, as augmented via recent FERC approval of the waivers filed in dockets ER14-1144 and ER14-1145. That being said, PJM is aware that some members incurred losses for which they cannot be compensated under the current terms of PJM’s governing documents. As a result, PJM expects that some of these members may elect to make filings with the FERC in order to seek compensation for losses they incurred.
PJM plans to intervene in some or all of these proceedings. Although the burden of proof to establish the just and reasonable nature of the specific cost levels rests with the petitioning member, PJM is prepared to provide detail to FERC regarding the extraordinary conditions which caused an individual member’s cost incurrence, including the underlying conditions that gave rise to the need for a particular unit to be available to run during portions of the cold weather conditions on certain days during the winter of 2014.
Ask FERC to investigate winter price spike
As contained in previous post Realgy Supports a Review of the January 2014 Energy Price Spikes, Realgy is joining CUB and all public advocates in asking FERC to investigate market manipulation of energy prices during the winter of 2014.
Please Ask the FERC to investigate and complete the petition at the bottom of the page; its intention is to ask FERC to investigate as we all have a complaint in common as seen below.
As has been noted in Realgy’s blog, the extreme cold winter weather has driven demand to levels not seen in 20 years. See “Polar Vortex created record demand for natural gas” and “In Response to “Hedge funds bet on US gas shortage as cold boosts demand”. If energy traders, pipeline companies, utilities, or power plant operators manipulated supply so as to cause us to buy the higher price energy it’s against the law. These actions need to be exposed in order to recover any monies already paid.
Realgy promises to keep you informed of this effort.
Realgy does not speculate on price changes
The CNBC article “Natural Gas could rise to $8: Energy expert” is an interview with a natural gas trader. One noteworthy facet of traders’ work is that they speculate on the changing cost of natural gas so as to profit from a price increase or decrease.
This is EXACTLY opposite from what Realgy does.
Realgy tries to buy natural gas so as to deliver the lowest price to our customers. The greatest variable in doing this is the changing volume of natural gas used by our customers.
Consumption or demand for natural gas; this is an instance where the trader and the energy marketer are both dependent on the weather (along with storage). Weather is the greatest driver in how much natural gas will be used; storage allows for a buffer in allowing the gas in storage to be readily available for use.
In the CNBC article, the discussion about the weather affecting consumption (withdrawals from storage equate to higher demand) is accurate. However, the coldest winter in 20 years would create disruption in any market place. So gas prices should rise when demand soars; the law of supply and demand dictates they do.
So the question is, by how much? Should they rise 27% in a day, followed by 15%, etc.? The answer is…probably not. This is when traders’ speculation drives pricing for which ALL users pay.
Realgy works with traders but does not speculate on price changes for natural gas or electricity.
Check out the CNBC article: “Natural Gas could rise to $8: Energy expert”
In Response to “Hedge funds bet on US gas shortage as cold boosts demand”
Written by Michael Vrtis, President of Realgy Energy Services in response to the Fiscal Times article “Hedge funds bet on US gas shortage as cold boosts demand”
Remember the financial crisis (is it over?)? Then this article should strike a familiar note. Hedge funds influencing the commodities market.
Inarguably the cost of natural gas has skyrocketed (some say far in advance of demand). As hedge funds buy NYMEX futures those purchases increase the prices as they create additional demand. This additional demand does nothing more than allow the hedge funds to place a bet on the NYMEX and their bet is then passed along to every user of natural gas. Accordingly, their speculation inflates the price of the NYMEX contract prices and therefore passes along these costs to ALL end-users (we call them customers) whose contract is tied to the NYMEX.
Part of the Dodd-Frank financial reform was to limit the influence of hedge fund speculating in the market.
Realgy cannot influence the NYMEX. However, the use of our proprietary ManagedPriceTM agreement minimizes reliance upon it. The ManagedPriceTM allows our energy buyers to use NYMEX, along with fixed price and INDEX purchases. The result is to minimize the impact of any single natural gas price and allow for consistent pricing that beats the utility costs. The history of the ManagedPriceTM program has shown it’s effective at mitigating short-term price spikes when used in conjunction with our Storage program and PriceWatchTM Service.
Check out the article in Fiscal Times: “Hedge funds bet on US gas shortage as cold boosts demand”
Natural Gas at Five Year High
Natural Gas prices have made a jump above $6.00 Dth or $0.60 / therm in the wholesale market; this is a 30% increase in the last couple days!
This increase looks speculative by traders but if it holds till February 26th it will set a five year high for the NYMEX first-of-month pricing and will keep bills high
The Bloomberg News article “Natural Gas Gains With Coffee as Commodities Jump; S&P 500 Rises” discusses the impact of natural gas and other commodities from the traders perspective.
Natural Gas price increased 27% on February 18, 2014
To keep track of the wholesale prices please enroll with Realgy’s NYMEX reports. It will send you NYMEX end-of-day reports daily.
Realgy is working to ensure our pricing stays as low as possible. Given we are all dealing with the coldest winter in 20 years and the highest energy prices in over 5 years.
Why are natural gas bills so high?
Two factors are at play on your bill; the amount of energy used and its cost. The following example is based on natural gas but electricity would be similar.
| This Year | Last Year | |
| Usage in Therms | 113 | 72 |
| This winter is 13% colder than Normal. | ||
| Gas cost/Therm | $0.718 | $0.420 |
| Average gas prices have more than doubled | ||
| Billed | $81.13 | $30.24 |
| Your bill will be the higher than it has been in the last 5 years | ||
Last year was warmer than a Normal* winter; in fact it was 72% of Normal in December 2012 and January 2013.
So if in a Normal year you use 100 Therms of natural gas, last winter you used 72. This was when the price of natural gas was about $0.420/Therm.
Now consider this December 2013 and January 2014 winter that is 13% colder than Normal.
So you will use 113 Therms. This is when the price of natural gas is about $0.718/Therm.
*a Normal winter is an average of 20 winters
A POLAR VORTEX…now that’s an extreme Weather Event!
Due to the severe weather in the Chicago Area during January 2014, the price of power quadrupled. Fortunately there was no accompanying shortage and, while the cost of power increased, the grid and the generation met everyone’s demand.
The wholesale costs for January 2014 for deliveries into the Tri-State (Illinois, Indiana, and Michigan) area:
- Natural gas went from about $4.40 to nearly $18.00
- Electricity settled at over $0.75, where it is normally around $.035
Realgy will recover the costs related to this short-term power cost increase with a onetime Real-Time Settlement charge on electric bills. This charge covers only the additional costs Realgy incurred for the market power we had to purchase to cover the extreme costs associated during this period. It will appear on either your January or February bills. By contrast, the utility will eventually raise rates (usually limited to two times a year) to cover their costs during this event.
Natural gas bills will look the same but you will notice the bill is higher. While Realgy’s base rate remains low the cost related to each utilities supply management practices imposed by Utility will increase our costs. Each utility limits what we can display on the bill so we can only display on our web site or in your storage report.
The breadth of Realgy’s experience extends back to the last time such an extreme weather event happened, which was 20 years ago. That is why Realgy offers the services we do to help protect our customers. Even though the market wholesale price in Chicago for natural gas and electricity jumped two to four times, Realgy’s average customer will pay less than a 40% increase for January gas and electricity.
Realgy does three things to consistently protect our customers from normal and extreme weather events:
- Managed Plan–a consistent low price to save money compared to Utility
- Fixed Price–through PriceWatchTM, this year (like the last three years) the Realgy PriceWatchTM Fixed Price was below the average winter price
- Storage (except for Michigan)–Winter gas at Summer Prices is a great way to prepay for winter gas with the added benefit that you do so at the summer prices.
Realgy will continue to do everything possible to continue to meet our customer’s expectations to save money on energy and rely on Realgy.
If you did not receive your PriceWatchTM notice this year, now is a good time to update your contact information with Realgy. You can do this by going to realgyenergyservices.com and filling out the Customer Contact Info Update Form.
Polar Vortex created record demand for natural gas
Written by Michael Vrtis, President of Realgy Energy Services in response to the USA Today article “Arctic blasts create record demand for natural gas”
The laws of supply and demand actually work; cold weather broke a 20-year record, energy consumption skyrocketed, and the prices went up.
Lake Michigan in Chicago, Illinois
How high?
The wholesale costs for January 2014 for deliveries into the Chicago market:
- Natural gas went from about $4.40 to nearly $18.00
- Electricity settled at over $0.750, where it is normally around $.035
Supply went up as the weather caused record energy demand and prices subsequently followed. No one went cold as supply kept up to demand; however, without advanced planning, you paid a lot more.
Realgy’s experience goes back to when we set the previous low temperature record. We were prepared for this eventuality, so our customers will pay far less with the use of Realgy’s ManagedPriceTM, storage, and PriceWatchTM.
Any good news?
Groundhogs Day on February 2, 2014 started with a shadow, so we should see 6 more weeks…but we are halfway through winter!
Check out the article in USA Today: “Arctic blasts create record demand for natural gas”
You’ll never hear us whine about the weather
Written by Michael Vrtis, President of Realgy Energy Services in response to the Chicago Tribune article “Feel free to whine over one of the worst Chicago winters in decades”
Raised as a Chicagoan, I recall blizzards that closed schools for weeks requiring trains to haul the snow out of the city! Of course my kids then look at me and ask about what covered wagons were like.
We were the Windy City and when the “hawk” was out, you had to bundle up. We were proud of being the city that worked hard and then worked harder when it was below zero.
The last few winters certainly have allowed us to think global warming was eliminating such winters. However, this winter will be the first winter in at least 10 years that will finish with average temperatures below normal for each month of winter (Nov, Dec, Jan, Feb, and Mar). During winter, especially winters such as this year, it’s important to be prepared for storms at your home, car, and place of business.
Realgy’s experience goes back to the last time winter weather was this extreme. That is why we have all three services in place; 1) a low ManagedPriceTM or NYMEX+ rate that is consistently below the utilities price, 2) storage gas service that makes possible winter gas use at summer gas prices, and 3) our PriceWatchTM service where our traders recommend fixed prices prior to the season (for 6 of the last 7 years this recommendation has been below the average seasonal price).
Realgy prepares for such storms every season. Our preparation is demonstrated by our consistently lower prices that you can rely on.
And, you’ll never hear us whine about the weather.
Check out the article in The Chicago Tribune: “Feel free to whine over one of the worst Chicago winters in decades”