Who Hit the Switch?

December 9, 2010

We have been lucky over the pas t few years. We have been blessed with warmer than usual winter temperatures. I know; last year we had some major snowstorms but overall the winter temperatures have been warmer.

Over the last year we have seen the natural gas market prices react to these warmer temperatures. Storage numbers have been at a 5-year high and prices have continued to drop to their lowest sustaining level in the last 3 to 4 years.

Speaking with many energy analysts, they feel we may have hit the bottom and prices will slowly start inching up.

Inching up may be an understatement? Just in the last week, prices jumped over 10%. Hit with the sudden cold front the market took off.

The cost of buying natural gas on the open market is made up of 2 factors. Nymex (gas out of the ground to the banks of Louisiana) and Basis (the transportation cost for getting natural gas delivered to your local provider). These 2 factors combined give us the Index. This is the total wholesale cost to buy natural gas on the open market.

The last couple of weeks have seen the market in a holding pattern. Nymex prices were under $4.00 a decatherm ($.40 cents a therm) and it was a wait and see scenario. Should we have seen continued mild temperatures the market would have remained stable.

With the sudden switch to cold temperatures and forecast for a continued cold snap; the market did not inch up but leapt. Nymex prices open today, as of this writing, at $4.61 a decatherm. Measure this against the low opening on 10/25/10 of $3.29 a decatherm.

Prices are still low compared to where they were 2 to 3 years ago. In 2008, natural gas prices hit a high of $14 to $16 a decatherm ($1.40 to $1.60 a therm). Just last year (2009) we were looking at the average price to compare of around $10.00 a decathem ($1.00 a therm). We are now seeing fixed price positions in the low to mid $6.00 a decatherm range.

Each account is unique and priced individually, for pricing is based on demand factors. Many clients are seasonal clients and their biggest usage comes from heating their locations during the winter. Their natural gas prices would be higher than a client having a more even demand factor, for they use natural gas throughout the year (a restaurant would be a good example).

Some clients have benefited by floating the market, taking advantage of the falling prices over the last couple of years. Now may be the time to begin a discussion and review your options. There is more upside risk (chance of prices raising higher) than there is downside risk (market prices have been at a 4 year low).

You can lock the price going forward for a 1 or 2-year period, which will provide an overall savings from the average prices you have been paying over the last year or at the minimum, lock the winter month which will provide price certainty.

Should you feel this is only a temporary rise in market prices, you may choose to float the market and look for a continued flatness in pricing.

One other option to consider, should the float scenario be of interest, would be to lock the basis (transportation cost) and continue to float the nymex. Several of our clients have found success with this option in the past. This position is normally taken when they see the Nymex as being too high and feel the market will be dropping over time. In the past, if we saw basis price fall under $2.00 this was considered to be a good deal. The current basis prices are well under $2.00.

Should you like to know more about your deregulated gas options email george@hbsadvantage.com or call 856-857-1230

Visit us on the web www.hutchinsonbusinesssolutions.com

The deregulated utility market has presented a great opportunity for savings over the last year. For the first time in 3 to 4 years, market prices have been less than the providers’ prices, aiding in a windfall to those looking to save money on utilities.

 If you have been tracking natural gas prices, you would see that the market has dropped close to 20% since the end of June 2010.

 Natural Gas

With the steady fall of natural gas prices, HBS has been advising clients to float the market index position to take advantage of the current market prices. If you are a PSEG customer and chose to float the wholesale market over the past 12 months, you would have realized a 17% savings. Not bad!!!  South Jersey Gas clients would have saved 8%.

When speaking to our clients, we still offer an option to fix the price for a 12-month period, however it doesn’t make too much sense to fix a price that is actually higher than the price to compare that the clients have been paying over the last 12 months. Why is the price higher? Because the future market still shows that prices will go up.

Some clients may choose to fix the price for they want certainty in their cost. They do not want to be effected by market fluctuations. However if you lock the price, you are unable to change the price should the market continue to go down. By floating the market index, you can take advantage of the lower price and should the market turn and start to shoot up, you will have the option to lock in a price at a later option.

Electric

The electric market is directly affected by the natural gas market prices for 30% of electricity is generated by natural gas. So natural gas is commonly used as a market indicator. With the current fall of natural gas prices, electric prices continue to fall and have become even more competitive.

The electric market is completely different than the natural gas market. While natural gas prices change monthly with the local provider based on market conditions, the electric prices are fixed from June till May.

Every February, the state holds an auction for those selling electricity in New Jersey. The local providers buy electricity on the open market and blend the results with the electric it has purchased over the last 2 years. So the current market prices that the local providers charge are based on a blended price from purchasing electric over the last 3 years. They take these results and then present a proposal to the BPU (Board of Public Utilities), as to the summer rates (June till Sept) and winter rates (Oct to May) they wish to charge. Both the summer rates and winter rates have defined on-peak and off peak pricing.

As a result each account is charged differently based on their usage. A company with more off peak usage will actually be paying less than a company whose prime usage is during the daytime when on-peak charges are used.

Fixing your electric cost in the deregulated market offers a flat rate pricing no matter when you use it. This has offered a great savings opportunity due to the current market downturn. HBS clients are realizing saving from 10% to 20% on current flat rate pricing.

Should you like to know more about saving in the deregulated utility market, email george@hbsadvantage.com or call 856-857-1230.

The deregulated natural gas market is presenting great opportunities for savings for those commercial accounts that are spending a minimum of $3000 per month.

With the recent drop in natural gas prices over the last year, Hutchinson Business Solutions (HBS) is providing savings from 8% to 20% depending on who your local provider is.

Your local provider currently buys natural gas wholesale and then bills their clients retail pricing. HBS puts our clients in a wholesale position.

When looking at historical pricing over the last year, we show that if you are currently a South Jersey Gas customer, your saving would be about 8%. PSEG and NJ Natural Gas customers would find a 15% savings, while Elizabethtown natural gas clients would be saving 20%.

We are currently advising clients interested in participating in the deregulated natural gas savings to float the market. This will continue to benefit them as long as the market stays flat or continues to go down.

If we were to look at fixing a term contract of 12 to 24 months, we often find that the fixed or locked price is actually higher than the 12 month average you have currently been paying. There are clients that do choose to lock a price, for they do not want to deal with market fluctuations and they are interested in adding certainty to their cost. The only problem that may arise is that if the market remains flat or goes down, they are unable to get out of their contract. Should market prices go up, they will not be affected for the price will remain the same.

Should a client choose to float the market, they will take advantage of the lower market prices and if we see the market start to spike up, they will always have the option to lock a price anytime during the term of the contract.

It has always been our goal to make the client aware of all the options available to them and to ultimately making them comfortable with the decision they choose.

Would you like to know more about opportunities to save in the deregulated natural gas market? Email george@hbsadvantage.com or call 856-857-1230.

We have found that savings is the deregulated natural gas and electric market provide great opportunities to add savings to your company, reducing cost and increasing your bottom line.

Natural Gas Deregulation

June 24, 2010

Large market swings offer you big savings.

If you have been following market prices for natural gas, over the past couple of years, you have probably noticed the large market swings. 

In 2008, PSEG prices ranged from $1.07 per therm in February to $1.64 per therm in July.

In 2009, prices dropped and we saw $.889 cents per therm in January with a low of $.496 cents a therm in September. 

This is good news for those interested in saving money in the deregulated natural gas market. PSEG and SJ Gas buy natural gas on the open market wholesale and sell it to their clients retail.

Should you be spending a minimum of $5,000 a month on natural gas for yor business, there is a big opportnity for savings.

With so much market fluctuation, we have been advising our clients to float their accounts, based on the market index.  If you are a PSEG client and chose to float the index over the past 12 months, you would have saved 12%-15% on your supply bill. SJ gas customers would have saved 8%, while NJ Natural gas clients would have saved 13%

Choosing to float the market index does not preclude you “locking in” on a fixed price at any time during the term of the contract. Conversely, if you choose a fixed price, you are unable to change to a float when market prices go down.

Note: Since the prices of natural gas have been so low, we have also seen this play a large effect on the reduction of electric prices in the deregulated market. Did you know that 30% of the electric generated is made from natural gas?

Want to learn more about opportunities to save in the deregulated natural gas market or deregulated electric market email george@hbsadvantage.com or call 856-857-1230.

Visit us on the web www.hutchinsonbusinesssolutions.com