Realgy Supports a Review of the January 2014 Energy Price Spikes
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”
Utility rates set to increase 11% for 6 months to collect for excessive costs from the record cold of January 2014
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)”
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”
The First Electric Generator of Its Kind
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.
A field of mirrors at the Ivanpah power plant in California. Jim Wilson/The New York Times
“…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 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”