Inching Up
June 1, 2012
While everyone has been keeping
Their eyes on gas pump prices
The big question
Will it go over $4.00 this summer?
Natural gas has been making its own mark
After nymex prices
Hit a 10 year low
In late April
We have seen the Nymex prices
Run up
Over 25%
During the last 30 days
You may have heard me say before….
You don’t know where the floor is
Until you passed it
We watched a slow steady fall of the nymex
Over a long period of time
Once it got to a point
Where investors may have thought
It may be…..
Too low
It shot up
Was it a market correction?
Analyst start talking about possibilities
Of having a hot summer
That will increase demand…
For 30% of the electric is generated
From natural gas.
Prices inch up
They also start looking at
Hurricane reports
That could affect the wells
In the Gulf of Mexico
Prices inch up more
They have even started to cap
Some of the natural gas wells
Hmmm
Supply / Demand
Cut down on the supply
That will get the
Prices to inch up
Higher
Market prices are still very competitive
It just that…..
In this market
Timing is everything
Natural gas and electric prices
Are still very competitive
If you have not participated in deregulation
Now is the time…
To lock in on the savings
Under contract
Now is the time to start looking
To lock in your renewals
To all HBS customers
Please take my phone call
To learn more contact
Visit us on the web www.hutchinsonbusinesssolutions.com
Tonight’s the Night
November 21, 2011
Tonight’s the night…..
Hurricane Swartz makes his long range winter forecast…
You know the guy with the bowtie?
How cold is it going to be?
How much snow will we get?
Remember last year?
We had that big snowstorm right around Thanksgiving…
What’s going on with this weather?
Here it is mid-November…..
Janet and I just got our winter clothes out
Dealing in the energy market
The one constant we discuss is temperature
Back in September
We were getting reports saying
The long range forecast calls for an exceptionally cold November
When will that start……
November 30th
Those statements kept pushing natural gas prices up
We held firm….
We waited….
We’ll see….
Here it is mid-November and temperatures are still in the 60s
Natural gas prices keep dropping
A whole market opportunity has opened up
With prices so low
We start to measure risk
How much lower can prices go?
Don’t you love this kind of stuff?
Can natural gas prices go lower?
Yes!!!
But there is more upside risk
With prices being sooooo low,
One cold snap and …
The market price can jump up fast…
It’s called the whiplash effect
Prices always go up faster…
And then they take their good old time coming back down
Now here’s my shameless HBS plug
For those businesses still buying natural gas from their local provider
This is a great time to lock into a very competitive fixed price contract
There we go….
I said it
Now the disclaimer…
Some circumstances may not allow you to qualify
Your monthly usage may be too small
or
We find stop service notices on your bill
Pick it up Hutch
Let’s get back on topic
Ohhhhh…..OK
So……..
Hurricane….
What will you say?
How cold will it be?
How much snow will we get?
I just bought a new snow shovel last year
I’ll be ready
PS: This was written on Wednesday. If you want to know what Hurricane said, you will have to go online and Google it.
Saving in the Deregulated Utility Market
March 21, 2011
Note: With the current deregulated market opportunities now being presented to many business that qualify, the market has been inundated with new sales personnel. I found this article provides on objective overview of questions you should ask and details you should know before making a decision.
There are many companies offering variable electric rates. I would not recommend this solution at this time.
With natural gas prices being the lowest they have been in the last 3 or 4 years, there are great opportunities to lock into a fixed price electric contract for a 1 or 2 year period.
By Carl Shaw
With the deregulation of energy in many parts of the US, competition is now allowed between energy companies to provide electricity at discounted rates directly to their customers. These Energy Service Provider Companies (ESCOs) are licensed by individual states and are required to adhere to the applicable regulatory guidelines set by the Public Service Commissions (PSC) or Public Utility Commission (PUC). Customers (end-users) also have the opportunity to work with electricity brokers or consultants who can compare different offers and provide additional services to help manage your monthly energy spending and costs.
If you are a business spending a minimum of $3000 a month on your electric or natural gas bill, you may qualify to choose your electric or natural gas supplier in deregulated markets, which could create savings opportunities. Companies that can control or manage their electric consumption to use more electricity in the off-peak hours will find the greatest opportunity for savings. In deregulated markets, you now have a choice and can choose lower energy rates without any risk or local service change.
Your local energy service providers buy natural gas and electricity on the open market at wholesale prices based on the current market conditions and then bill their customers at increased rates to include margins and/or service fees.
Independent Deregulated brokers can put your company in a competitive position by leveraging extensive buying power to help you develop energy supply procurement programs. They can conduct an unbiased rate and tariff analyses that may result in substantial savings to you.
Due to the current economic conditions and the complications deregulation has caused there are many new energy advisory companies popping up, so be sure to know all the facts before making any decision.
When choosing a qualified utility tariff analysis & rate optimization firm to represent you, you should be aware of a few things:
First, be sure that the price you are quoted from your local provider includes all charges. Should you be talking to a consultant or broker, make sure the price is “fully loaded” meaning, does it include the 7% loss allowance (to deliver 100,000 kWh of electric, the providers must actually send 107,000 kWh, for there is a 7% loss in transmission)? Also does it include the local sales tax?
In PA, you must also ask if the price includes GRT (gross receipt tax) and RMR (reliabilty must run). RMR is a pass thru charge from the provider that allows them to meet peak demand periods when they must use additional resources to meet this demand. This is normally found during the summer months.
All these important components should be included in the quote from your deregulated provider to make an accurate comparison. These components are included in your price to compare from your local provider. Often, companies will provide a low end quote without including sales tax and a load allowance. Be sure you are comparing apples to apples. Often when these figures are included, their real quote is much higher.
Does the company providing your quote have an Energy Information Management System in place, to make sure that you are getting the best available rate?
Are they shopping your account to more than 1 provider. Each provider has a sweet spot (a market they are most competitive in). An independent broker who knows the market will be able to identify these providers and work to get the best price.
Information is power. Knowing what questions to ask will save you time and money.
There are opportunities to save from 10% to 25% in the deregulated electric market depending on your usage patterns.
When making a final decision, know that you are dealing with a commodity and timing is everything. Market fluctuations may happen on a daily basis.
Veto urged for N.J. power-plant bill
January 13, 2011
By Andrew Maykuth
Inquirer Staff Writer
Posted Jan. 13, 2011
The bill’s sponsors said the legislation approved Tuesday by the New Jersey Legislature would lower energy rates. But opponents, including power generators such as Exelon Corp. and large industrial consumers, call it an anticompetitive sweetheart deal that will cost consumers in the long run.
“We cannot afford an energy surcharge to guarantee billions of dollars of revenue to a few select developers,” said George M. Waidelich, vice president of energy operations for Safeway Inc., which says it now spends about $2 million a year on electricity for its five Genuardi’s stores in South Jersey.
The measure would provide a guaranteed long-term income for developers of several large power plants. The legislation was known as the “LS Power Bill” because its initial aim was to provide guarantees for LS Power Development L.L.C. to build a giant natural-gas power plant in West Deptford, the hometown of state Senate President Stephen Sweeney (D., Gloucester).
Tom Hoatson, director of regulatory affairs for LS Power, said the guarantees were necessary to obtain financing to construct the 640-megawatt plant along the Delaware River, which would cost from $800 million to $1 billion.
Hoatson said the bill would provide the New Brunswick company “an opportunity to compete with other generators.” The plant would employ up to 500 people to build and about 25 people to operate.
Christie spokesman Michael Drewniak said the bill was under review. Legislative sources said the governor was expected to sign it because his office was consulted in drafting amendments that addressed some of the administration’s concerns.
In the arcane world of wholesale electrical markets, the New Jersey bill has attracted intense attention because its opponents say it would turn back the clock on years of efforts to open electrical-power markets to more competition.
But supporters of the legislation say those markets, which are managed by regional power-grid operator PJM Interconnection Inc., have failed to lower prices for N.J. residents.
And they say that many of the interests opposed to the N.J. legislation are incumbent power generators like Exelon Corp. and Public Service Enterprise Group of Newark, which stand to gain by keeping new power generators out of the market.
“I don’t think it’s a system that encourages building new generation to keep prices down,” said Stefanie Brand, the New Jersey Rate Counsel, the state’s consumer advocate.
“The market is not a true free market,” she said. “It’s a constructed market that was created by PJM, and as far as we’re concerned, it doesn’t work.”
N.J. officials complain that the Garden State has suffered more than its western neighbors because it has paid up to $1.9 billion a year in extra capacity and congestion charges that PJM imposes on power transmitted into the state.
Lee A. Solomon, a Christie appointee who is president of the N.J. Board of Public Utilities, told PJM in December that “it is incumbent upon New Jersey to promote new generation in locations where it is needed the most to ensure reliability and to control costs.”
Sweeney, whose West Deptford hometown would host the LS plant, introduced the legislation that would allow the board to sign long-term contracts with several power generators to provide up to 2,000 megawatts of electricity at guaranteed rates. If market rates fall below the threshold, N.J. ratepayers would pick up the tab.
“Consumers have been paying inflated capacity charges,” said Derek Roseman, Sweeney’s spokesman. “This is a chance to reverse that. How can that not be a good thing for consumers?”
The Compete Coalition, a Washington lobbying group that promotes open electrical markets, has appealed to Christie’s antitax sentiments by branding the bill the “Energy Tax of 2011.”
John E. Shelk, president of the Electric Power Supply Association, testified in December that the bill would “artificially depress” rates in the short term, but would discourage other generators from investing in the future.
Shelk said the bill likely would be challenged because it would interfere with federally sanctioned wholesale power markets.
Public Service Enterprise Group, the politically powerful Newark energy company that operates the PSE&G utility, announced its opposition to the measure last week.
Anne Hoskins, the company’s senior vice president for public affairs, said the state’s intervention in the past requiring utilities to enter into long-term supply contracts had “disastrous results.”
In the next six years, PSE&G will pay $1 billion for the remaining costs of the long-term contracts, she said. And Atlantic City Electric recently received approval to raise its customers’ bills 5 percent to recover the costs of its out-of-market contracts.
“Subsidies are a slippery slope,” she said, “and will drive away other nonsubsidized private investment in New Jersey.”
What is shale gas and why is it important?
December 17, 2010
As reported by 
Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.
Did You Know?
Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth’s surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.
Did You Know?
Shale gas in 2009 made up 14% of total U.S. natural gas supply. Production of shale gas is expected to continue to increase, and constitute 45% of U.S. total natural gas supply in 2035, as projected in the EIA Annual Energy Outlook 2011.
Does the U.S. Have Abundant Shale Gas Resources?
Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.
According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.
Where is Shale Gas Found?
Shale gas is found in shale “plays,” which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface-level observation techniques and computer-generated maps of the subsurface.
Source: U.S. Shale Plays Map, http://www.eia.doe.gov/oil_gas/rpd/shale_gas.pdf
How is Shale Gas Produced?
Two major drilling techniques are used to produce shale gas. Horizontal drilling is used to provide greater access to the gas trapped deep in the producing formation. First, a vertical well is drilled to the targeted rock formation. At the desired depth, the drill bit is turned to bore a well that stretches through the reservoir horizontally, exposing the well to more of the producing shale.
Hydraulic fracturing (commonly called “fracking” or “hydrofracking”) is a technique in which water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well. When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas at reasonable cost. Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale.
Schematic Geology of Natural Gas Resources
Source: modified from U.S. Geological Survey Fact Sheet 0113-01.
How is Shale Gas Production Different from Conventional Gas Production?
Conventional gas reservoirs are created when natural gas migrates toward the Earth’s surface from an organic-rich source formation into highly permeable reservoir rock, where it is trapped by an overlying layer of impermeable rock. In contrast, shale gas resources form within the organic-rich shale source rock. The low permeability of the shale greatly inhibits the gas from migrating to more permeable reservoir rocks. Without horizontal drilling and hydraulic fracturing, shale gas production would not be economically feasible because the natural gas would not flow from the formation at high enough rates to justify the cost of drilling.
Diagram of a Typical Hydraulic Fracturing Operation
Source: ProPublica, http://www.propublica.org/special/hydraulic-fracturing-national
What Are the Environmental Issues Associated with Shale Gas?
Natural gas is cleaner-burning than coal or oil. The combustion of natural gas emits significantly lower levels of key pollutants, including carbon dioxide (CO2), nitrogen oxides, and sulfur dioxide, than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of energy released.
However, there are some potential environmental issues that are also associated with the production of shale gas. Shale gas drilling has significant water supply issues. The drilling and fracturing of wells requires large amounts of water. In some areas of the country, significant use of water for shale gas production may affect the availability of water for other uses, and can affect aquatic habitats.
Drilling and fracturing also produce large amounts of wastewater, which may contain dissolved chemicals and other contaminants that require treatment before disposal or reuse. Because of the quantities of water used, and the complexities inherent in treating some of the chemicals used, wastewater treatment and disposal is an important and challenging issue. If mismanaged, the hydraulic fracturing fluid can be released by spills, leaks, or various other exposure pathways. The use of potentially hazardous chemicals in the fracturing fluid means that any release of this fluid can result in the contamination of surrounding areas, including sources of drinking water, and can negatively impact natural habitats.
NJ Deregulated Energy Industry
June 4, 2010
By Chrysa Smith
It’s been said that choice is the ultimate luxury. Since 1999, New Jersey businesses and residents have had the luxury of choosing which utility company from which to purchase gas, electricity, and heating fuel; but with choice often comes challenge. Along with their new options and the predicted benefits of a more competitive marketplace, New Jersey residents have also had to deal with the changes and questions raised by the state government’s deregulation of energy providers.
The Balance of Power
In 1999, the New Jersey Board of Public Utilities (NJBPU)—the governing body for electric, oil and natural gas services—introduced a bill to deregulate the state’s energy industry for residential customers. (New Jersey’s commercial energy market had been opened up earlier in what some say was an attempt to keep local corporations happy and committed to staying put.)
The goal of the Electric Discount and Energy Competition Act (EDECA) was to enable New Jersey energy consumers to shop around and chose the energy provider that best suited their budget and service requirements. The free-market rationale hinged on the prediction that enough healthy competition between providers would keep prices down while offering better service and reliability to customers. Under the auspices of the federal Department of Energy, New Jersey took measures to safeguard free market competition for electricity and gas, including the requirement for the NJBPU to “unplug” power stations with higher costs than other available energy sources.
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According to Betty Kennedy, public relations coordinator for Conectiv Power Delivery, an independent utility provider based in Carney’s Point, New Jersey. “Up till 1999, when the state voted to restructure the energy industry, each company had a specific service area.”
Conectiv—which services eight counties in southern New Jersey—claims that the deregulation has reduced their customer’s rates by 10.2 percent, saving them a cumulative $290 million during the years from 1999 to 2003.
But the story is a bit more complex. Conectiv, and the states other 21 licensed electric suppliers and 29 licensed natural gas suppliers are, as their names indicate, suppliers. They provide the hardware—the lines and cables—and once those are in place, they also provide the power that flows to New Jersey commercial and residential customers. That power may have been purchased from companies several states away, or it could come from oil, coal or renewable energy sources. Energy may even be bought and sold much like the stocks in an investment portfolio. If it’s important for a customer to know where the cool flow from their central air system comes from, or the juice that runs the building elevator, post-deregulation, that customer now has a voice.
According to Terry Moran, manager of Retail Choice for Public Service Electric & Gas (PSE&G) in Newark, New Jersey’s largest energy provider, “Since the transition period for New Jersey, the largest change is that we no longer own generation. We are now a pipes-and-wires company.”
Enter the ESCOs
Though the playing field has changed somewhat, the delivery companies—called Energy Service Companies, or ESCOs – have remained essentially the same. Since deregulation, it’s the transmission that has changed. Out-of-area transmission companies, called third-party suppliers, are now in competition with area companies who once dominated their own market.
“The restructuring act has allowed New Jersey to move forward to look for better prices in the state,” says Kennedy. “Our customers pay less than they did in ’99.” This has been accomplished, thanks in part to the annual Basic Generation Service, or BGS, auction. Each February, according to PSE&G spokesperson Karen Johnson, transmission companies gather together to offer energy packages to service providers. Suppliers can pick up an energy contract for a year or two, or more at wholesale auction.
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“For the customers that have chosen to stay with [us],” says Johnson, “we secure the power through the annual energy auction that allows them to buy in a wholesale [market], where prices are competitive. PSE&G is the utility that is part of the Public Service Enterprise Group (PSEG) parent company, who also owns PSEG Power—the unregulated generation side.”
And, says Kennedy, much like commodities of all kinds, the buying can be ‘locked in’ at a specific rate—called fixed pricing—or float with the market value through its natural cycle of ups and downs—called variable pricing.
Not a Flawless System
While the provision of greater choice and potentially lower costs seems appealing, the program has not been without its problems. According to a report published by The New Jersey Public Interest Research Group’s Citizen Lobby and Law & Policy Center in Trenton, “New Jersey pays 50 percent more than the national average for our electricity. And energy providers, for the most part, are offering the same old fossil-fuel and nuclear-generated electricity.” For the programs first four years, the rates were frozen for electric utilities, and some customers actually saw savings of 10 percent on their electric bills. Yet now, as pricing caps come off kilowatt rates, it remains to be seen what the full affect will be.
“One of the biggest fallacies of deregulation,” says Janet Garofalow, assistant vice president and manager of sales and marketing for Castle Power LLC—a Harrison, New York-based fuel oil and natural gas service provider with a satellite office in Englewood—”is that we can’t guarantee that we can save our customers money in comparison to the utility commodity cost when they fix a price at a certain time. We can’t predict what the market will do going forward.”
Garofalow goes on to explain that to a large extent, the market is controlled by the weather. “In the winter, one reason for gas prices rising is the cost of transportation for the gas, due to increased demand. In the winter of 2002, when we never wore a winter coat, pricing came down.” To a large extent, the energy market is a gamble in commodities futures—where knowledge of the market and good planning come into play.
Maneuvering Through the Maze
One of the biggest attractions to third-party energy suppliers has been the advent of aggregation. And it may just be one of the largest benefits to multiple dwelling communities sharing real estate management companies. According to Alyssa Weinberger, director of regulatory affairs for Hess Energy Marketing in Woodbridge, “Buying bulk would be advantageous. With an aggregation of individual customers into larger groups, you can get better deals.”
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Hess—along with several other suppliers who deal with commercial and industrial customers—have done just this for multiple dwelling communities, and even area school districts, in order to reduce costs. Management companies should be aware of these and other options for energy conservation under current energy systems.
Most ESCOs and third party suppliers will tell you that their marketing efforts have not been anything like those of the deregulated phone companies, and that the resulting switching of suppliers—at least on the residential side—has been marginal. Right now, the BPU estimates that third party suppliers represent less than six percent of service to gas customers and fewer than 3.5 percent for electric supply switchers.
According to Johnson, PSE&G currently has 1.6 million gas customers and two million electric customers. “Some have both gas and electric,” says Johnson. “We serve about 75 percent of the state’s population on a north-south diagonal that follows the New Jersey Turnpike.”
“The percentage of customers who have changed is not large,” adds Moran. “On the electric side, most of those who have switched have been the largest customers. We roughly have about 18 percent of our [megawatt] load switched. For gas, we have roughly 30,000 customers who have switched to third party suppliers.”
If you think your association might benefit from joining that percentage, all it takes to make a change is a phone call and a signed contract—which some suppliers say can be done by a board member. Yet, in this transition period, and in the age of all too common legal proceedings, having the input of an informed accountant and an attorney review would be prudent. Especially in the case of buying power for entire communities, the stakes are high, contracts are involved and costs of litigation even greater.
“You need a service provider who you can go to and ask questions,” Garofalow adds, “Although [the energy business] isn’t rocket science, it is complex.” Before your board even thinks of making any changes in your utility provider, it makes sense to be sure that the people responsible for the purchase of energy understand the terms, the bills and the contracts.
According to Moran, “Billing can be done in a few different ways. For Basic Generation Services (BGS), all charges can be contained in one utility bill. Third party suppliers have a variety of options that are set forth in their contracts.”
Like a fixed mortgage, a fixed rate is fairly straightforward, and can be budgeted for accordingly. For a variable rate, it helps to know the index to which the rate is tied. According to Weinberger, “Some large customers have been put on hourly pricing versus a fixed rate—the advantage being that you pay for what you really use, with the ability to see where spikes are.”
Eric Hartsfield, a spokesperson for the NJBPU, indicates there are many options. “In the case of a condo, you may have one company providing service for the common/general areas, while another may provide service to the individual unit owners.”
Other Considerations
It also helps to be informed about the latest programs from providers that may benefit your community down the road.
“We recommend that dual-fuel boilers be put in if possible and if it makes economic sense to the customer,” says Garofalow—providing the option of burning natural gas or alternate fuel as the state of the market may dictate. Programs like the New Jersey Clean Energy Program (www.njcleanenergy.com) offer multiple promotions that provide cash incentives for changing systems that are cleaner or more efficient. So, when a community looks at their energy costs, they might consider replacement time for heat pumps, air conditioning systems and boilers in addition to their bills. If timing is right, there could be savings all around.
Information is out there, however, in the form of conferences, customer awareness programs and directly from the BPU (www.bpu.state.nj.us). The more informed the management company, condo or co-op board, the easier it will be to maneuver through this kilowatt maze without it becoming a drain on an association’s time and budget.
To find out more about saving opportunities in the NJ deregulated utility market email george@hbsadvantage.com or call 856-857-1230.
Chrysa Smith is a freelance writer and a frequent contributor to The New Jersey Cooperator.
JCPL Summer Rate Savings
June 4, 2010
June 3, 2010 as reported by electricitywatch.com
On June 1, new summer default rates went into effect for all New Jersey customer s being serviced by JCPL (Jersey Central Power & Light) who are still on the utility’s price to compare default rate.
While residential competitive electric providers remain limited in the state, there are roughly two dozen competitive electric suppliers offering lower rates for commercial and industrial customers compared to the JCP&L default price to compare rate. Business customers in the GS rate class will pay a rate of $0.115462 from June through September of 2010, and then pay $0.110205 from October 2010 through May 2011. Current fixed competitive electric rates in the area are in the low $0.10s per KWh resulting in savings for most businesses between 8-14%.
Default rates in JCPL are derived from auctions the utility performs in previous years for the current year. Due to lower natural gas prices, current market rates for electricity are lower than the current default rates resulting in saving opportunities for businesses.
For more inf0rmation on Jersey Central Power and Light competitive rates, send an email to george@hbsadvantage.com .
Deregulation FAQ.
May 24, 2010
As reported in NJ Electricity Review
|
New Jersey Electricity Review
|
 Your Current Electric ProviderSince New Jersey restructured its electricity market, the incumbent providers (PSEG, JCPL, Atlantic City Electric (Conectiv), Rockland Electric) are now solely in the business of managing the lines and wires portion of your electricity service. They are not in the business of offering competitive supply prices. However, they have been given the responsibility to provide high default rates for those business consumers who have not chosen a competitive supplier. |
| Why should I get off of the Default Rate?
There is a misconception in New Jersey that your current provider will be upset if you choose another company to supply your energy. This could not be more untrue. The incumbent providers (PSEG, JCPL, ACE, Rockland) are regulated lines and wires companies whose revenues and profit margins are managed by the state. They do not receive profits for the supply portion of the bill and would rather see all of their customers receive supply service from alternative providers so that they can focus on the reliability and customer service of the power lines.
However, because deregulation is a fairly new concept, the New Jersey State Public Commission Board has mandated that the incumbent providers provide a default service for those customers who are slow to choose a competitive supplier. Due to recent market conditions, the fixed rates that are available in the competitive market are significantly lower than the high default rates, by as much as 15-30% . |
| What Does Deregulation Mean to Me?The deregulated energy market in New Jersey provides the opportunity for all businesses to experience huge savings in their energy spending. The hurdle is knowing when and how to see these savings. Fixed generation rates, bandwidth limitations, ancillary charges, congestion fees, and blend-and-extend price adjustment clauses are just a few elements worth understanding to realize your potential savings. |
| How Can I Save Money?In order to see the maximum savings it is essential to work with a firm who represents you, not the provider, and who are experts in all deregulated energy markets, electricity contract negotiations, and the natural gas market..
By representing your company or organization we will force several providers to compete for your business resulting in lower rates and more favorable contract concessions. We will provide you with a full savings analysis that will compare your current default rate versus the low fixed rates we are able to find. Once the contract is executed we will continue to monitor the market on your behalf and look for opportunities to renegotiate and lower the rate even further.
Should you like to know more about opportunities to save in the NJ deregulated natural gas and electric market email george@hbsadvantage.com |
Why Do Natural Gas Rates Change?
April 5, 2010
As reported by Public Service Commission of Wisconsin
HBS has been an independent energy broker for the last 10 years. Many times we are asked why the natural gas market can be so fickle and prices vary so widely from day to day. Below is an overview I found that may help shed some light on the subject.
Let us know your thoughts?
Consumers are sometimes surprised when they open their natural gas bills. The rate that their local utility charged this month could be 25 percent higher than it was just last month. That same rate, however, could at the same time be 30 percent lower than it was last year. This leads some consumers to wonder what is going on at the utility. The fact is that natural gas price changes are driven by several different factors, some of which the utility has control over, and others it does not. Some of these costs are subject to regulatory oversight while others are not. Some of these factors change infrequently and in small increments, while others swing widely from month to month. Still others vary by the season.
What causes natural gas price changes?
What is the wellhead price?
Why is the commodity price so unstable?
What do utilities do to insulate customers from volatility?
What are interstate pipeline costs?
Are pipeline rates constant from season to season?
How does increased winter usage affect pipeline capacity costs?
Are there other reasons that a natural gas rate changes?
What are local distribution service rates?
What causes natural gas price changes?
Changes in natural gas prices are caused by five principal factors. Natural gas rates change when there are: 1. Changes in the unregulated wellhead or commodity price of natural gas 2. Changes in the overall level pipeline demand charges approved by the Federal Energy Regulatory Commission (FERC) 3. Changes in the period of collection of pipeline demand charges approved by the Wisconsin Public Service Commission (PSC) 4. Special circumstances such as pipeline refunds 5. Changes in local distribution service rates approved by the PSC
What is the wellhead price?
The price of gas at the site of production is referred to as the commodity price or wellhead price. Of all the cost components, natural gas commodity prices are by far the most unstable and the least predictable. Figure 1 shows monthly wellhead prices of natural gas from 1999 to 2009. It is clear that these prices move around quite a bit from month to month and from year to year. Natural gas price volatility is among the highest of all commodities that are traded on major market exchanges. The price can unexpectedly double in a matter of months. It can also tumble by 50 percent just as fast.
Why is the commodity price so unstable?
The natural gas commodity price is so volatile because it is a market price, not a regulated price. Market forces reflect the underlying supply and demand situations. Since there is no regulatory oversight a sudden unexpected cold snap can send prices soaring. Conversely, an unexpected decline in the price of competing fuels, such as oil, can cause industrial customers to use much less gas than expected and the price of natural gas can decline precipitously. Figure 1 shows monthly prices. The daily prices are even more volatile.
What do utilities do to insulate customers from this volatility?
Utilities buy gas in the off-season and store it for winter use The principal method is to buy gas in the off-season and store it for winter use. The principal reason that storage services are used is because the pipeline system in our part of the country was designed so that a stored gas inventory is required if the utility is to satisfy its customers’ total demand. The resulting price hedging impact is, therefore, more of an ancillary benefit from the use of storage rather than the primary reason for using it. If gas is put in storage in the summer and withdrawn in the winter, the cost of gas charged to consumers in the winter will be a blend of the current market price and the cost incurred when buying in the summer. This blending tends to have a limiting effect on the price volatility to some extent. It is far from perfect insulation, however. When natural gas prices rise or fall dramatically, consumers will still see noticeable changes in their gas rates. Since on any given day Wisconsin gas utilities can meet only a fraction of their gas demands with supplies from storage, they are always buying relatively large amounts of gas at market prices. Therefore, even if storage services are used to their maximum capacity, market price changes always filter through to the prices paid by the ultimate consumers if no other action is taken. Utilities use financial instruments The other action than can be taken to reduce price volatility is a relatively recent development in natural gas markets. Futures, options, and swap contracts for natural gas traded on the New York Mercantile Exchange provide a means to hedge natural gas prices. Proper use of these contracts allows the utilities to lock in prices or to put ceilings on prices, for example, which limits the volatility of gas costs that flow through to consumers. The goal of using financial instruments is generally to control price volatility, not to speculate on the future direction of energy prices or not even to reduce gas costs. The utility’s cost of administering its hedging program is passed on to consumers so that, over a long period of time, a hedged gas supply portfolio will tend to produce slightly higher gas prices than if the portfolio were not hedged. The prices will, on the other hand, be more stable and more predictable. Whether the increased cost justifies the reduced volatility is a matter of personal opinion. However, more of the Wisconsin gas utilities have decided to use this approach as energy prices have become more volatile since 2000.
What are interstate pipeline costs?
Interstate pipeline costs represent the space (capacity) on the pipes, that transport natural gas. Pipeline costs are much more stable than are commodity prices. The overall level of pipeline charges changes very little from year to year. Occasionally, the FERC sets new pipeline rates that must be flowed through to consumers, but in most years the pipeline rates are fairly constant.
Are pipeline rates constant from season to season?
Generally no. The PSC requires most of the state’s gas utilities to recover more of its charges for pipeline service in the winter than in the summer. Why does the Commission do this? Increased demand in the winter, not the summer, determines whether the utility must contract for new pipeline capacity. There is plenty of space available on the pipeline in the summer so that even if everyone installs natural gas fired grills for summer barbecues, the utility simply runs more gas through its space on the pipe. So customers who increase usage in the summer cause the utility to incur commodity costs, but not pipeline capacity costs.
How does increased winter usage affect pipeline capacity costs?
The same cannot be said of customers who increase their winter usage. If numerous customers convert from, say, fuel oil to natural gas for home heating, the utility must make sure that it has enough space on the pipeline to meet the increased demand. If it does not, it will have to arrange for more space on the pipe. Who should pay for the increased pipe capacity, the customers who installed gas grills for summer usage or the customers who installed gas furnaces? Those that installed the furnaces clearly caused the need for the new capacity, so from a cost-causer / cost-payer perspective, those customers should pay for that capacity. To link cost-causer with cost-payer, the PSC requires utilities to use a seasonal pricing approach to collect pipeline costs. The concept is shown in Figure 2 below. The winter period runs from November through either March or April, depending on the utility. The important point to note is that pipeline charges increase by about $0.10 per therm on November 1. This is a hefty increase for most consumers. This means that even if commodity costs are stable from October to November, gas bills are likely to rise noticeably once October ends. Figure 2
Are there other reasons that a natural rate changes?
Natural gas rates can change due to reasons that occur irregularly. For example, in recent years several Wisconsin utilities were required to pass back to customers a refund of pipeline costs. Other utilities might be allowed to or required to pass on to consumers slight surcharges or credits based on their performance under gas cost incentive mechanisms. It is difficult to know when and if these types of costs might be incurred. In any event, they tend to be quite small relative to the commodity, interstate pipeline, and distribution service costs.
What are local distribution service rates?
These rates reflect the utility’s cost of maintaining and operating its local system for distributing natural gas to homes and business. It is surprising to many consumers that the portion of the business fully regulated by the PSC, namely the basic distribution business, is usually not the culprit when it comes to significant natural gas price changes. These costs are, like interstate pipeline rates, fairly stable from year to year. Unlike interstate pipeline rates, however, local distribution rates do not vary by season. These rates change only when the PSC has a formal rate proceeding for the utility. In most cases, these rates are not changed more frequently than once every two years.
**There are many factors that cause natural gas price changes We hope that it has been clear that there are numerous forces acting on natural gas prices. Some are market forces. Others are institutional forces such regulatory decisions by the PSC or FERC. The combination of all these determines the price that Wisconsin consumers pay for natural gas service.
Deregulated Gas Savings
March 14, 2010
As reported by Energysop
Deregulation of utilities means that the historical monopolies granted to a few large utilities providing electricity, telephone and natural gas are eliminated. These companies will just operate the distribution systems, the wires and the pipes. Competitors then enter the market with different pricing and service offerings. With the onset of deregulation in all of these industries, it is possible for consumers to realize significant savings by shopping around for these commodities.
Utility deregulation is complicated since there is a fixed and very expensive distribution system already in place – pipelines, power and phone lines. It’s just too expensive, disruptive and environmentally harmful to construct parallel distribution systems. This is different from deregulation of airlines or financial services where no such fixed infrastructure existed. As a result, only the commodity, gas, electricity or telecom, is deregulated.
Natural Gas Deregulation
Historically, consumers received supply and delivery of natural gas from a single company who had the monopoly franchise for the region in which they lived. These companies bought gas on the wholesale market and sold it to consumers in their jurisdictions according to regulated rates set by the local regulatory agency, an energy board or public service commission.
Natural gas is being deregulated in many jurisdictions. Examples are, Ontario, Alberta, Maryland, California, Georgia and Pennsylvania. This means that a householder or business can buy gas directly from a supplier at a competitive price — not just from the gas utility. These utilities, however, continue to have the franchise to distribute gas and charge a regulated fee.
Deregulation separates the sale of the gas as a commodity from it’s distribution. The product is available at a competitive price and under competitive conditions but the delivery is a standard regulated charge. This would be similar to a situation where you might buy milk by phone, and it is delivered by a large courier service such as Federal Express. The milk is a commodity, and it would be priced differently between suppliers, but the supplier relies on a distribution system provided by Federal Express trucks. A portion of what you pay would be for the commodity (milk), and a portion for the distribution (Fed Ex). In the case of utilities, the distribution will remain regulated, but the commodity supply will be a free market.
Experience in Other Jurisdictions
The U.S. initiated deregulation in the gas industry at the wholesale level in the mid 1980s which resulted in gas prices declining about 35 per cent for large commercial and industrial customers, according to a Harvard University study. Prices for residential consumers changed only slightly.
Agents, Brokers and Marketers (ABMs)
Consumers choosing to shop around for their natural gas supplies can benefit from the price swings and variations inherent in a competitive energy marketplace. But where do consumers go to buy natural gas? Deregulation has given rise to a number of sources of gas supply.
First, you can continue to let your distributing utility purchase gas on your behalf and deliver it to you with no change in the process.
Or you can look into purchasing it from an agent, broker or marketer. These are independent companies that either sell on behalf of gas producers or purchase supplies of gas and re-sell it to consumers. Securing a long term supply from one of these energy marketers when the gas prices are lower can result in significant savings over the term of your contract.
Should you choose to buy from a gas marketer, nothing about your service will change. You will still get a bill from your distributing utility which will indicate a regulated Delivery Charge. This is about 1/3 of your bill and a Gas Supply Charge which is the remaining 2/3. The delivery charge will be kept by your distributing utility and the gas supply charge will be forwarded to the gas marketer or supplier you chose. Should you choose some value-added services offered by gas brokers, such as energy cost comparisons, rental gas equipment or an equipment service contract, these will also be added to your bill. If you switch to a gas marketer, there is no interruption of service nor any other additional fee charged.
This cost split is a key point to remember when you are comparing costs or considering an appeal from one of the gas suppliers or marketers. You have no doubt received promotional materials from one of these either by phone, by mail or from someone knocking on your door. The suppliers, brokers and marketers are only dealing with 2/3 of your bill. The distribution charge, which is 1/3 of your bill, is fixed and regulated by regulatory boards. They have periodic hearings to evaluate and set this rate. The remaining 2/3 is variable depending on which supplier you choose. As a result, when a promotional message claims a 10% saving, it is referring to 10% of the 2/3.
Take, as an example a fairly typical annual gas bill of $ 1,500. One third of that, $500, is a fixed distribution charge. The remainder, $1,000, is the gas supply charge. A supplier offering a 10% saving is offering a saving of $ 100, which is 10 % of the $ 1000 gas supply charge. The saving on the total energy bill is 6.7 %, ($100 saving on a $1,500 gas bill).
Gas marketers offer varying contract terms and conditions. In general, however, you have two basic choices. You can sign on for a single or multi-year contract at a fixed price or you can choose a rebate option which means you pay the regulated price set by your distributing utility and will receive a rebate if your marketer can buy the supply for less than that price.
Our Perspective:
I found this article gave a good explanation of the deregulated natural gas opportunity. If your company is spending more than $3000 a month for natural gas, you should be looking at buying natural gas in the deregulated market. Our clients are saving a minimum of 10% to 15% by buying natural gas in the deregulated market.
Currently yor local provider is buying natural gas in the wholesale market and then selling it to their clients for retail prices. Should you qualify, we are able to put your company in a wholesale position and the savings will fall to your bottom line.
Hutchinson Business Solutions provides independent financial solutions in the dereglated energy market. We have been positioning our clients for savings in the deregulated energy market for over 10 years.
To find our more information, visit our website www.hutchinsonbusinesssolutions.com
or email george@hbsadvantage.com You may also call 856-857-1230.
Hutchinson Business Solutions 