Another ESCO files for bankruptcy last week (Agera Energy). They are a repeat Chapter 22 offender as Agera was a spinoff from the formerly bankrupt Glacial Energy. This is a product of a poorly hedged book that became upside down on their operating margins due to weather driven volatility in the wholesale markets. It is a risk that all ESCO companies face, the ones that stick around view their business as a risk management function as opposed to a sales and marketing function. A healthy balance of both is what leads to a successful business model.
Prompt month natural gas contract settle down 2.2% to close the week at $2.35 / MMBtu. The 12, 24, and 36-month contracts were relatively flat at $2.43; $2.45; and $2.46 / MMBtu respectively. The curve is tight, so why not take advantage of longer dated retail power and gas supply options. Take risk off the table with the low spread environment. Allow your ESCO supply company to work for your business or residence, and manage market volatility with fixed price contracts. Variable rate contracts do not offer price protection (or value) in my own opinion.
New gas storage levels came out on October 3, 2019 for the week ending September 27, 2019. The overall storage level ended the week at 3,317 / MMBtu, an increase in the system of 112 MMBtu. Natural gas storage levels are 0.5% below the 5-year average, and 16.3% above where they were 12 months ago. Keep in mind that this is storage in the system. As you can see from the charts, the storage levels are below historical averages, but there are still ample supplies of natural gas in the ground that has yet to be tapped by producers. As we approach the hi gas demand winter season, keep an eye on the relatively low gas storage inventory levels.
Variable rate plans are meant to be pegged to an index (keep these market movements in mind when evaluating comparable billing periods!). While pass through components such as capacity and ancillary services costs have come up, the commodity itself remains in check. As a customer, you have the choice to decide who holds the price volatility risk. Protect yourselves with fixed price contracts. Those customers who elect a variable rate plan are 100% exposed to price volatility driven by weather and other market conditions. Allow your supply company to do their job and manage the volatility by offering you a fixed price contract.
Attractive opportunities are in the market for customers to hedge out price volatility. Keep the risk where it belongs, with your well-seasoned energy supply partner.
There is no current storm activity on the Atlantic Coast.