Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 31 Bcf. The five-year average withdrawl for December is about 124 Bcf. Total U.S. natural gas in storage stood at 3,195 Bcf last week, 4.6% less than last year and 3.1% lower than the five-year average for this time of year.
Northeast Winter Update
Northeast markets continued their wild ride into the New Year with short term pricing seesawing by as much as 50% multiple times over the prior 2 weeks. As recap, Q3 and Q4 of last year was defined by a sustained bull market for gas and power. Many indices for 2022 commodities approximately doubled from early in the year. Since then, NYMEX gas has been clobbered, the winter package giving up roughly 50%. Power prices for Q1 in New England have struggled to find direction in the wake of a number of competing factors including: (1) bullish markets for global LNG, (2) moderately bearish fundamentals at the national level, (3) a cold weather front taking shape in the 10 day forecast, and (4) the ongoing realities of living through winter in New England, e.g., gas pipeline constraints, higher weather sensitivity, and the general inability of regional stakeholders acknowledge the risks let alone build any meaningful infrastructure that would mitigate them. But that discussion is for another day.
New England utilities record highest “last resort” commodity rates ever
Ratepayers receiving their commodity from the local utility are one of the early apparent casualties of the recent volatility. Many New England utilities secure the bulk of their power supply in the fall or early winter, precisely when markets were peaking. For January 2022, Eversource’s supply rate for large businesses in Northeastern Massachusetts will top 30 cents per kWh, nearly a 94% increase from the previous month. In Connecticut, January prices are set to hike nearly 160%. Eversource has simply advised that the hike is due to an increased cost of electricity and natural gas that it purchases from wholesale suppliers. A spokesman for the company said that the rate hikes are pass-through, meaning that profits are not affected. They are of course correct, however, this does not diminish the effect of such changes on customers, nor does it address the fact that this volatility is likely to get worse and is largely self-inflicted.
Market Opportunities
The unfortunately high utility hedges also represent an opportunity for customers who may still be on last resort service. Wholesale markets have indeed declined substantially from when utilities hedged, and competitive contracts can be secured at a fraction of the cost. Even throughout Q3 and Q4, SourceOne has been securing contracts in the 8-11 cent per kWh range, roughly a third of what utilities are charging this winter. A customer using on average 1.5 MW of power could avoid half a million dollars in Q1 by migrating to a more favorable supply source. Please contact your energy advisor for more information.
Overall, demand for natural gas all over the world is soaring. The pandemic was monumental in dropping demand and price for natural gas. However, the recovering economy is now putting pressure on markets for oil and gas as supply has been timid to scale back up from pandemic level lows. With coal-fired generation on the decline, natural gas is being used more and more as an economic and environmentally friendlier substitute. In addition, much of the liquified natural gas supply is being drawn on for the U.S., Europe, and Asia. These factors together lead to an inelastic and volatile market for natural gas. Europe will bear the brunt of this tightening but North America, and particularly the Northeast, is not immune. Perhaps voters in Maine are regretting their decision to kill the New England Clean Energy Connect (NECEC) project in November. That 1,200 MW transmission project voted down by ballot initiative, would have brought cheap, reliable, clean energy right into the center of New England in just a couple of years.
Massachusetts shores up offshore wind pipeline to 3200 MW
Massachusetts is on its way to double offshore wind production. With the selection of projects from both Vineyard Wind and Mayflower Wind, offshore wind will create 1,600 megawatts of power for the state by the end of the decade. Charlie Baker was seeking a plan to create 1,600 MW of energy, but only received two offers for 1,200 MW contracts. In order to follow through with the plan, Baker decided to pick up Vineyard Wind’s 1,200 contract project as well as negotiate a 400 MW contract from Mayflower Wind.
Both Mayflower Wind and Vineyard Wind are already in the process of creating the first 1,600 MW of power generation through offshore wind for Massachusetts. Vineyard Wind’s project is set to finish at the end of 2023, and Mayflower Wind’s production recently received federal approval and is slated to be built by 2025.
Officials from Avangrid, the parent company of Mayflower Wind, have announced that their 1,200 MW project should power up to 750,000 homes annually. Once the projects are completed, including the initial 1,600 MW as well as the newly procured 1,600 MW, offshore wind will power 25% of Massachusetts’ energy requirement.
Pending non-rate case activity
A long list of dockets covering topics from renewable energy to covid-19 related cost recovery are being adjudicated by regulators early this year. Highlighted below are significant cases across the northeast.
Massachusetts: In July 2021, the state’s electric utilities filed for approval of a grid modernization plan for 2022 to 2025. Intervenor testimony for new investments and advanced meter infrastructure concluded on December 22nd, and rebuttal testimony is set to take place on January 14, 2022. Separately, the MA DPU is also reviewing utility proposals for redesign of rates for electric vehicle charging, which is expected this year.
Rhode Island: In Rhode Island, the state’s regulators may reject a proposal for the acquisition of Narragansett Electric by PPL Corp. Narragansett Electric, which serves electric and natural gas customers in Rhode Island, was set to be acquired by the Pennsylvania Energy company PPL pending approval by the state. While Rhode Island’s Division of Public Utilities and Carriers has control over approval of the merger, the Public Utilities Commission has advised against allowing the merger to go through. The PUC claims that there is not enough evidence to demonstrate that the merger will not have an adverse impact on rates. A public hearing was recently held on December 13, 2021.
New Hampshire: In a Nov. 12, 2021, order, the PUC denied the utilities’ request for approval of their Statewide Energy Efficiency Plans and ordered them to submit 2022 and 2023 budgets at substantially lower rates, effectively gutting the program and putting many vendors in limbo. This may be revisited in 2022.
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