I think we just dodged a bullet! Last week the meteorologists were having a field day tracking this massive storm that was supposed to hit the east coast. High winds, heavy rains. Normally, when we get a bye, the storm sweeps out into the ocean. This storm actually went inland, west of the I95 corridor. Sad to say, they did get substantial flooding.

Why am I talking about the weather, you may ask? Because this is my article, I can choose a topic. Seriously! … Because weather plays a very big part of monitoring natural gas commodity cost.

The current natural gas prices are still the lowest they have been in the last 4 years. September’s NY Index price (the price that providers buy gas) was $.39 cents a therm compare this to $1.41 in July 2008. Quite a difference! Why, you may ask?

First of all, natural gas storage levels continue to be at a 5 year high. Add to that, the shale natural gas that been found in western PA. They are saying this could provide natural gas to the US for the next 100 years.

It is the old supply and demand theory, until the market deems it appropriate to ignore.

For now, market activity show that this is a great time to be buying gas in the deregulated natural gas market. Remember, that since deregulation, the local providers are no longer in the supply business. Therefore they charge you a default rate, which in normally higher. They buy natural gas wholesale and bill their customers’ retail.

HBS puts our clients in a wholesale position. Our clients are finding saving from 10% upto 20+%, depending on who your local provider is.

Since 30% of the electric is generated from natural gas, it also plays an important influence to the current market electric prices. They are also at a 4-year low.

To qualify your commercial natural gas or electric bill should be a minimum of $3000 a month each. Many of our clients are finding substantial saving in the deregulated utility market.

Should you like to know more about savings in the deregulated natural gas and electric market email george@hbsadvantage.com or call 856-857-1230.

Dave Gardner
Published: April 7, 2010

Age-old questions about the proper role of government are lighting up Harrisburg as the state debates its role in the deregulated market for electricity.

Pennsylvania House Bill 1909, introduced by State Rep. Camille “Bud” George (D-Clearfield), seeks to create an independent Commonwealth Energy Procurement and Development Agency to purchase and sell electricity.

Supporters claim the process would lower rates for electricity and spur development of new generation sources within the state. Opponents charge that Harrisburg has no business becoming directly involved with electric generation.

“What we are proposing is necessary to create real price competition and to build more generation capacity through large contracts,” says George, who has been a vocal opponent of electric price deregulation. “Regional electric pricing is now a reality for consumers and business, yet all of the power comes off the PJM grid. This is a negative for those customers who aren’t located in lower pricing areas.”

According to George, Pennsylvania’s recent deregulation has already proven to be a flawed system because true competition between electric suppliers has not materialized.

He also charges that the public was misinformed about the real consequences of deregulation, and claims that PPL Corporation bought electric plants outside of the state with the money they collected from increased rates. 

“This money should stay in Pennsylvania,” says George. He predicts that the long-term consequences of deregulation will be ongoing rate increases, and that this will force industry to leave Pennsylvania. George also predicts that, through his plan, one cent per kilowatt hour of savings across the board would create a total savings of billions of dollar throughout the state. “We must also help develop new plants for baseline generation,” he adds.

Financial risk?

George Lewis, spokesperson for PPL Corporation, calls the George plan a very large commitment for Harrisburg to assume that would put the state at financial risk. He says this type of risk should only be carried by private investors.

“No perfect electrical model exists, but increasing competition through the free market is the best way to provide competitive prices in Pennsylvania,” says Lewis. “The state will be subject to the same forces PPL and the others companies must deal with, such as unstable fuel prices and environmental regulations.”

Lewis says it is hard to envision how a state agency could generate substantial savings and build and run power plants better than experienced private firms can. He also questions if Harrisburg could ever recover its cost of investment, and says that all decisions by the government authority would be taxpayer financed.

Tyrone J. Christy, vice chair of the Pennsylvania Public Utility Commission (PUC), says the bill is designed to introduce real competition in the state’s electric generation market. He adds that the plan would offer long-term contracts for private investment, thereby enabling investors to take commitments to lenders.

“Our new deregulated market, which is really under PJM control, is doing well with reliability but not with competitive pricing,” says Christy.

He explains that generation prices in the state are now based on the peak natural gas generation price. However, 90 percent of Pennsylvania’s base load is still generated by coal and nuclear power, which Christy calls cheap generation.

Because the generation pricing is based on gas prices during peak periods, profits for the majority of generation are substantial. 

Christy also voices concerns that prices for generation will increase as the American economy improves. He states that market forces will allow new plants to be built only if pricing gets “ugly,” despite the fact that electricity is an essential service.

“Can we wait for market volatility to fix this?” questions Christy. “It is now necessary to build nuclear plants, which cost big dollars, but no one will do this without long-term commitments.”

Christy also takes issue with the impact of deregulated pricing on Pennsylvania’s industrial customers. He says the business plans of these companies were based on cheap affordable power, but these firms have received the biggest price increases since deregulation.

“Yes, I want generation to be profitable, but our industrial base is now paying for huge generation profits,” says Christy. “Are we doing the right thing to retain and attract industry with deregulation? The fact is Pennsylvania is not desirable for industry.”

Disguised promotion?

Robert F. Powelson, commissioner with the Pennsylvania Public Utility Commission (PUC), calls the bill a disguised attempt to promote select rate payers.

“We want 1996 prices in 2010, but the collateral risk inherent in the state becoming active in the electric market will fall on the taxpayers,” says Powelson. “Risk that can produce mistakes should be taken only by private investors.” 

Powelson urges Pennsylvania’s citizens to embrace the competitive market and to pursue tactics in electric conservation. He points to data that indicate 25 percent of the state’s electric users have already switched suppliers, and adds that attempts at regulation in Georgia and Florida eventually produced huge price increases.

“In my view, this bill in Harrisburg is a bad piece of legislation,” says Powelson. “There is no evidence to support claims of price conspiracy here, and if the state were to build generation plants it would be a high risk matter.”

According to Powelson, a mature free market model is now working in Texas, where more than 100 suppliers are making product offerings that include fixed rates, variable rates, and green generation. Additionally, with natural gas prices depressed and additional gas beginning to flow from the Marcellus Shale, power prices in Pennsylvania may drop.

Ray Dotter, spokesperson for PJM, emphasizes that fuel prices are the key to electric generation rates. He states that generation therefore involves fixing risk at a set point. “Prices for contracts also depend on timing,” says Dotter. “Some of Pennsylvania’s local utilities have been criticized for buying contracts at peak times, and that certainly can create trouble. Pricing is cost based and this goes back to fuel costs. Who will actually bear the risk, because fuel costs are an unknown?”

New parameters

Gene Barr, vice president of government and public affairs with the Pennsylvania Chamber of Business and Industry, questions if big government can do a better job of buying energy than the private sector. These concerns are amplified by the fact that the deregulated market is evolving with many new parameters.

Barr also points out that the deregulated telecommunications market is an example of free market success. Before deregulation, costs for long-distance were much higher than they are today and popular cell phone technology had not been deployed.

“Should we entrust energy to the government?” asks Barr. “Government is notorious for making choices with political motivation.”

Our Perspective:

Deregulation was started back in 1998 to help introduce competition to the utility market. In the first couple of years we found opportunity for savings with the mid to large commercial and industrial clients. However, the market turned around 2005/06 and the commodity prices increased.  As a result, it made more sense in some instances to go back to the local providers.

In the meantime, PA put a moritorium on electricity and kept the prices well below market prices. In Jan 2010, PPL openned up the deregulated market and in Jan 2011, Peco will be entering the deregulated market.

The electric commodity market prices are the lowest they have been in the last 4 years. With the openning of the PA market to deregulation, we are currently finding great opportunities for savings in the PPL territory. The price to compare in PPL is currently around $.105 cents per kwh. We are finding opportunities in the mid $.08 cent per kwh depending on the size and usage  of the client. Although this may end up being a higher price that has been paid in the past due to the moritorium on pricing. With the lifting of the moritorium, the local providers will be increasing their prices and as shown, we are finding opportunities to save on electric pricing in the future.

Peco has been buying electric on the open market for the last 6 to 9 months preparing for the intoduction of deregulation in Jan 2011. We are currently waiting for Peco to release their price to compare. It is scheduled to be released by the end of May 2010. Many of the Peco clients are preparing for this transition. Our recommendation is that if you are shopping, do not jump to make a decision until Peco releases their price to compare. This will serve as a basis of comparison to make an objective decision.

Should you like to know more about opportunities for utility savings in the NJ and PA market, email george@hbsadvantage.com or call 856-857-1230.

 

New Jersey has a backlog of more than 700 applications for solar power rebates, and property owners have to wait months, even years, to get solar panels installed, according to a report in The New York Times.

The report said the program, which is paid for by surcharges on all utility bills, has been shut down several times during the past three years because applications far outpaced rebate money. Some solar installation companies have had to lay off workers while they waited for rebate checks to be sent.

All this has convinced New Jersey regulators, the report said, that it is time to wean solar energy from public subsidies. The state plans to replace rebates with tradeable energy credits.

With oil prices skyrocketing, demand for solar power is booming, the report said, and the decision is significant because New Jersey has used the rebate program to help install more solar panels than any other state but California.

“We need to do things differently because ratepayers can’t keep paying for rebates indefinitely,” Jeanne Fox, president of New Jersey’s Board of Public Utilities, told The Times.

Our Perspective:

NJ is taking great strides to introduce solar and other forms of alternative energy resources. Faced with an annual projected 1.5% increase in energy demand over the next 8 to 10 years, they fear they will be unable to meet the demand. As a result they have introduces a Energy Master Plan calling for a decrease in demand by 20% by the year 2020. They have also established as a goal to have 22.5% of their energy produced by alternative resources ( solar, wind, geothermal ) by the year 2020.

To provide incentives they have reworked the SREC ( solar renewable energy certificates ) program, increasing the value of the SREC from just over $200 TO $711 as of 6/1/08. The SREC is a commodity that will be traded, you will be assigned a SREC account as soon as a solar panel has been installed and you are producing electricity. One SREC will be paid for every 1000kw of electric produded.

The SREC program is designed to cover 60% – 70% of the installation cost of a solar system. My calculations show that it will cover the cost of the installation over a 15 year period. The payment of The SRECs along with the 30% Federal Energy Tax Credit makes this a home run for businesses.

Gov Rendell is busy persuing a similar plan to promote solar in PA. More on that as the news becomes available.

Bottom Line

With the inabilty to build new power plants to meet the growing demand for energy, the providers are using these funds to underwrite the opportunity of making you the provider and pulling usage off the grid.

Solar has come full circle and has become the talk of the town.

Solar…The New Sexy

Would you like to know more about solar opportunities in NJ and the surrounding Phila areas email george@hbsadvantage.com