Municipalization will not lower prices for consumers.
We have posted numerous articles about how municipalities are offering their residents electricity or natural gas collectively to energy marketers. The idea is that “aggregation” of the residents will provide the marketer the ability to deliver a lower price. If that were the case, no one could beat the utility because the question is who would be a bigger aggregator than a utility? The utility AGGREGATES everyone in the state. Yet, Realgy beats ComEd and Ameren consistently. So why can’t municipalities come in lower?
The difference is cost of service and overhead.
Municipalities require energy marketers to deliver savings compared to the utility, take on billing and collections, and pay the municipality a portion of the margin. The simple fact remains; the cost municipalities want to collect makes them higher than the utility.
So Chicago’s latest deal is a fixed 5.3 cents (however, the ComEd rate hasn’t been posted yet) and the terms won’t include the cost during the highest-demand periods of the year nor the cost of transporting the juice over high-voltage lines from the power plants to ComEd’s local distribution grid. These costs are variable and will add considerably to the fixed price.
The potential upside is $34 per household per year. Homeowners will be looking closely at this offer.
Energy purchasers will start to focus not just on the price but also on the terms. When they do, they will move to be more transparent.
Find the whole Crain’s Chicago Business article “Chicago electric bills to rise up to 18% in June under new Integrys deal”
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.
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.
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.
A fixed price in energy is given for either a pre-determined amount of energy or is given for an “all you consume”. You can think of it as either paying for an entire dinner or returning again to the buffet tables.
In the instance of a fixed price with a closed or set amount, the amount of energy used that exceeds a customer’s historical usage is charged at market price there the market price must be defined in the agreement.
Under a fixed price for open quantity agreement, all usage should be charged at the same rate. If there are circumstances beyond what is considered normal, other costs can be passed through; those circumstances must be defined in the agreement. Typically an examination of these terms doesn’t take place until the circumstances arise.
A winter vortex is anything but normal conditions.
The costs for delivering energy this winter has far exceeded any reasonable planning. Hence utilities and marketers are looking to pass through weather-related costs to the customers. As the article mentions, COMED, along with every utility, will be increasing costs associated with this winter.
Realgy knows our costs and settles them monthly. This prevents the cost recovery process or delay that utilities go through.
Realgy’s offers fixed prices for both open (all-you-can-eat) and closed (set amount) quantities. For this winter, our PriceWatchTM was offered as open quantity. Realgy typically offers seasonal fixed rates or for one year periods. This avoids having to have “re-openers” or uncertainty for both ourselves and the customer that are part of multi-year contracts.
Check out the whole Crain’s Chicago Business article “Frigid temps spur suburban power supplier to hike prices”
REALGY couldn’t agree more with the need to investigate this winter market reaction. As highlighted in the various articles posted on the Realgy blog, the cost borne by utilities, marketers and our customer’s sky rocketed.
This winter weather required every energy marketer and utility to purchase the energy being used by our customer’s (above their planned usage) at the going market price; there is no planning or negotiations during such periods.
Therefore, any manipulation by traders or owners/operators of power plants or pipelines that took advantage of this weather to inflate the market price needs to be investigated.
Realgy will look to send a letter in support of FERC investigating the market response and all/any irregularities. For instances, Feb 2014 pricing is above Jan 2014 pricing!
Realgy is continuing to work hard, as the weather vortex is back (as of Feb 26th 2014) to reduce the impact of this winter weather on our customers.
Check out the full Citizens Utility Board article “As Electric/Gas Bills Skyrocket, CUB and Consumer Advocates In 10 States Request FERC Review Of January Price Spikes”
So January’s 2014 price impacts are beginning to be tallied by utilities and as expected, they are “significant”. The utilities faced the same circumstances as the energy marketer; the coldest weather in 20 years put unexpected demand pressure on natural gas and electricity pricing. The short-term impact caused significant costs to utilities, energy marketers, and every utility customer.
The following article specifies the issues that utilities must balance in order to recover costs when they have a customer choice program. Each utility must balance the fact they under-collected during a past period, while at the same time they know that raising rates will offer more incentive for customers to switch to energy marketers that offer lower rates or alternative services.
Seems like a catch 22 but is it? The question is not whether the utility will recover its cost (and the interest on carrying it), but rather who should pay it. The utility rightfully recognizes that customers are price sensitive and will look for alternatives when prices rise. When customers see the rate increase they may choose an energy marketer’s offer that has already collected those costs. Therefore, the utility will collect their uncollected costs from those fewer customers who remain with the utility. Rest assured, eventually they will recover these costs.
Realgy has the capability to know our costs for energy at the end of each month. This lets us effectively mitigate the expenses as they are incurring and recover only the costs for operational-flow orders, congestion, and settlement costs (costs imposed by utility practices) immediately. While this might be a rate shock for everyone, it eliminates any future “uncollected” costs that must eventually be recovered.
Realgy is working hard to continue to reduce the impacts of this cold weather affecting our customer energy costs. Winter won’t be over until the Blue Birds are singing!
Check out the Energy Choice Matters article: “SHOCK: Pennsylvania Utility Seeks Nonbypassable Charge to Recover Excessive Default Service Costs from January (Change from Quarterly to Annual Reconciliation Backfires)”
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”
The Ivanpah solar power plant in the Mojave Desert officially opened Thursday February 13, 2014 after almost four years of construction, and is the first electric generator of its kind.
“…focuses sunlight from 350,000 mirrors onto 2,200-ton boilers 339 feet in the air to make steam that drives turbines to produce electricity”
To imagine what this is, put yourself at the beach, you are 6 feet tall (or you’re standing on a beach chair), and you look as far as you can to the horizon; that should be about 4 miles. From this spot on the beach, 350,000 mirrors are spread over a distance farther than you can see (5 miles in all directions) and all those mirrors direct the sun’s rays onto the surface of a boiler that gets hot enough to produce steam which is used to drive a turbine to produce electricity.
That is cool!
It will take bold and imaginative ideas and, while some ideas may prove to be impractical, we will find ways to continue to create energy for the world’s consumers that can be sustained (without damaging the earth for the next 100 years).
Realgy has invested in photovoltaic (PV) solar generation where the sun light is converted into electricity within the solar panel.
Check out the NY Times article: “A Huge Solar Plant Opens, Facing Doubts About Its Future”
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.