While we are all enjoying the fine summer weather, I
thought it would be useful to take a look back at electricity rates for this
past winter and to think about what the coming winter might hold for us. Before
we get into this topic, however, I need to note that this will be my last blog
on New Hampshire energy issues for the next year. I am heading off to Botswana,
Southern Africa, as a Fulbright scholar, where I will be studying energy
matters in Botswana, with a particular focus on the solar energy field and
storage technologies. As you can imagine, the energy issues in a developing
country are quite different. Here in NH, we are all used to reliable,
inexpensive electricity whereas, in Africa, two-thirds of the population do not
even have access to electricity, it can be very expensive, and, when available,
it is often not reliable. In NH, we sometimes seem intent on blocking the
development of any energy projects, whereas in Africa energy infrastructure development is welcomed, encouraged,
and supported. The energy field and the associated issues will be quite
different and I am looking forward to learning more. While down in Southern
Africa, I will be firing up a new blog, titled Energy in Botswana, so if you are interested in following my
energy explorations in this part of the world, drop me an email and I will put
you on a notification list. But back to NH energy matters…
- Wholesale prices (and thus retail prices) for electricity during the 2013/2014 winter increased due to natural gas pipeline constraints.
- The three deregulated utilities—NH Electric Co-op, Unitil, and Liberty Utilities— substantially increased in their winter default service rates, with price increases ranging from 60 to 75%.
- PSNH rates only increased by 4% and they ended up with the lowest rates in the state.
- The increases were due to the fact that Unitil and Liberty Utilities were compelled to lock in electricity prices from the short-term 2014/2015 futures market for electricity where prices had skyrocketed due to the high prices of the 2013/2014 wholesale market.
- I made the recommendation that the utilities should not be restricted to purchasing their future electricity supply to just six months out and that they be allowed to adopt a portfolio approach of both long- and short-term electricity supply agreements to mitigate the effects of short-term price spikes.
I thought it would be interesting to take a look at what actually
happened over the winter and what has happened since then.
As shown in the figure below, wholesale electricity prices did spike over the winter but nowhere near
the frequency, duration, or magnitude of the previous winter. Peak prices were
even lower than those of the 2012/2013 winter.
Data Source: EIA
Compared with the previous two winters, prices increases
this year were moderate and actual wholesale rates were lower than the futures
prices at the start of the season. In October 2014, futures prices for the
winter peak in January and February were ~18 c/kWh (see Gonna
Take You Higher). In
January and February 2015, although the wholesale market prices peaked at ~12 c/kWh
for January and 20 c/kWh for February, the daily averages for those months were
a lot lower—at 8.7 and 13.7 c/kWh, respectively.
This means that when the electrical utilities bought electricity on
the futures market, it is likely they overpaid relative to actual day-ahead wholesale
prices. However, this the essence of hedging (or locking in) the price of a
commodity ahead of the time you actually need it: if actual prices turn out to be lower, you end
up overpaying, but, if prices end up higher, you are very pleased. Hedging is
just like paying for insurance – you pay a premium to protect yourself: it is
not about getting the lowest possible price; rather, it is about reducing risk
and avoiding exposure to excessive price increases.
After those very large winter increases, the summer default
rates plummeted and the three deregulated utilities ended up with rates lower
than that of PSNH, which again had the highest rates in the state. The figure
below gives an historical record of the default rates for the four NH
electrical utilities.
Data Source: Courtesy of NH PUC
Futures prices for electricity for the upcoming winter are currently
pretty low compared with those of years past (see the figure below). The futures markets indicate prices of the
order of 12 c/kWh for the Jan/Feb 2016 winter peak, with further decreases expected
in the following winters. These lower futures prices are most likely a
reflection of the changes that we are seeing in the New England electricity
market. The local electricity supply coordinator, ISO-NE, has worked hard to
mitigate the extent and duration of the winter spikes by implementing a winter
reliability program in which owners of oil-based generating facilities and
liquefied natural gas storage operations are paid to store fuel. This ensures a
reliable and predicable backup supply of alternative fuels to generate
electricity should there be bottlenecks in the natural gas supply from
pipelines.
Data Source: CME
My predictions for electricity rates for the next few years
are that we will continue to see short-term winter spikes due to natural gas
pipeline congestion during high demand periods but that these spikes will
moderate over time as ISO-NE expands and improves its winter reliability
program, as some the natural gas pipeline projects get implemented, and as more
Canadian hydro power makes its way down to New England.
Since the deregulation of electricity supply in NH, customers
are no longer compelled to purchase their electricity from their default
provider. Given the big fluctuations in default energy rates and the
availability of competitive suppliers, I thought it would be interesting to
look at how customers have responded – are they flocking to competitive
suppliers or are they staying with their default utility? I took a look at the
customer migration numbers for PSNH – the largest NH utility. The chart below
shows data for the past three years. The data in orange show that, from about
July 2012, the number of residential customers purchasing their electricity
from competitive suppliers started to accelerate, and this trend really kicked
in in the first quarter of 2013 when there was big movement of customers to
competitive suppliers. The numbers reached a peak at the end of 2013, when
approximately 28% of PSNH residential electricity customers were supplied by other
companies. Since then, there has been a slow decrease and, presently, some 20%
of the electricity supply to residences comes from competitive suppliers. The
data in blue, which is for all PSNH customers (including small and large
commercial and industrial enterprises), show that, in October 2013, almost 60%
of all electricity distributed by PSNH came from competitive supplies. The
numbers have fluctuated since then but, this past winter, this number fell
below 40%, corresponding to a big migration back to PSNH due to their lower
default rates. There is now a slow movement away from PSNH again, as lower
summer rates begin to appear attractive to the commercial and industrial
enterprises.
Data Source: NH PUC
Some months ago I
wrote about a website called shopenergyplans.com, which
allows you to compare electricity costs from competitive suppliers in your
service area. At that time, shopenergyplan.com was only presenting information
for suppliers who agreed to have their rates posted. Shopenergyplans.com has
advanced since then and now provides details for a larger number of competitive
suppliers. In my last blog on this topic, I noted that rates for only three
competitive suppliers were listed for the Manchester service area. Yesterday, I
noted that are now seven different suppliers listed, with 40 different plans,
ranging from 1 to 36 months, and including various renewable energy sources. A
few weeks ago, shopenergyplans.com notified me of two electricity supply plans
from competitive suppliers offering lower rates in the PSNH service area. This
website is a good place to start if you are considering looking for a
competitive supplier but I caution you to do your research and make sure that you
understand the contract terms – remember that there can be costs for switching
and the competitive suppliers can
shunt you back to the service utility in your area at their discretion.
As I noted at the start, this will be my last blog until I
return next year.* If you are interested in following my energy adventures down in Botswana, please drop me a note at my email address below. In the meantime,
thank you for your interest in my work. Keep in touch, let me know what is
happening in NH while I am away, and remember to turn off the lights when you
leave the room.
Mike
Mooiman
Franklin
Pierce University
mooimanm@franklinpierce.edu
(*Next Year - A very appropriate song by the Foo Fighters
featuring the ubiquitous Dave Grohl. Great video too. Enjoy Next Year.)
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