For week ending Sept 13 the gas market was flat relative to the week prior. Spreads between the 12, 24, and 36 month terms were unchanged, so there does not appear to be an advantage to locking in rates greater than 12 months. When the spreads get tighter, it is an indication of low inflation, and an opportunity to go longer when locking in your fixed price. As spreads become wider, it is a reflection of increased volatility, which usually translates in a premium the longer you elect to lock your rate. The possibility of US military involvement in the Middle East continues to exist causing some market uncertainty, however a weak hurricane season and cooler fall temperatures add to low levels of market volatility.
New gas storage levels came out on Sept 12 for the week ending Sept 6. The data showed 3,253 Bcf of gas in the system, up 65 Bcf from the previous week, or up 2%. The prior year’s report ending the same week showed 3,425 Bcf in the system, so the levels have come down 5% vs the comparable period a year ago. The being said, present gas in the system is at around the 5 year average of 3,207 Bcf.
Customers looking for price protection should elect to lock their rates with a 6 month fixed price product. Those customers seeking the flexibility of short term contracts, and being able to participate in the benefits of lower index pricing should elect to go with a variable price product.
The past several weeks has seen gas prices run up, however we did see some relieve after Thursday’s storage report, a decline that continued Friday, for the week ending September 6th..
I have not posted before on the impact of the US Energy Information Administration (“EIA”) storage numbers that come out every Thursday at 10:30 am eastern time, and more often than not has an immediate impact on the market be that up or down. The EIA reports the amount of natural gas storage in the US system each week, and is a measure of the amount of gas supply that is able to meet the demands of consumers across the US. Analysts make their estimates of what that storage number will be. When the actual figures come in, the market reacts to those storage levels being over or under the market expectations, largely determined by those same analyst estimates. The inventory levels of gas are measured in billion cubic feet (“Bcf”). The levels are always reported as of the prior week’s storage levels. The data reported on 9/5/2013 showed 3,188 Bcf, up 58 Bcf from the previous week, or up 2%. The prior year’s report ending the same week showed 3,398 Bcf in the system, so the levels have come down 7% vs the comparable period a year ago. The being said, present gas in the system is at around the 5 year average of 3,145 Bcf.
Political turmoil in the Middle East, threat of the US going to war, and the active period of the hurricane season can all lead to volatility in the coming months. Winter season and colder weather also presents a risk of increased volatility in the power and gas markets. Those customers looking for price protection should elect to lock their rates with a 6 month fixed price product. Those customers seeking the flexibility of short term contracts, and being able to participate in the benefits of lower index pricing should elect to go with a variable price product.
Arizona Commissioner to Hold Stakeholder Meetings on Retail Choice Topics
September 3, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Arizona Corporation Commissioner Brenda Burns informed her colleagues that she will hold a series of meetings with stakeholders regarding specific topics in the Commission's retail electric choice investigation, stating there is, "a great deal more information to acquire, research, study and discern in order to assist me in my full consideration of the Retail Competition matter."
"As many have noted, the decision on whether or not to pursue Retail Competition in Arizona is one of the most, if not, 'the most' important decision to face the Commission in more than a decade. I have appreciated the fervor and passion displayed by both sides of this crucial question and I have learned a great deal from both the advocates and opponents of the proposal to pursue this venture," Burns said.
"However, I feel that I still have a great deal more information to acquire, research, study and discern in order to assist me in my full consideration of the Retail Competition matter," Burns said.
"There are some distinct issues that I wish to delve into on a deeper scale. I will be inviting several key stakeholders to the Commission to discuss and deliberate these separate topics so that I can weigh the disparate arguments and ask questions of both sides. I trust that all of you share my concerns and frustrations with the limited way we can discuss and weigh the conflicting volume of evidence as it has been presented to us for the better part of this year," Burns said.
"These discussions will be noticed and anyone who wants to attend in order to listen and observe is welcome. It is my desire to move in a deliberate, thoughtful and prudent manner towards an informed decision when I/we finally vote on this matter. I anticipate inviting stakeholders to meet throughout the month of September on the various topics and invite you to join me in any or all of these meetings," Burns said.
For week ending Aug 30th, gas markets are trending up for the third week in a row. The 12, 24, and 36 month strips are now approaching the $4.00 mark, slightly above where they were at this time in 2012, and off the hi marks we saw at this time in 2011. The spread between the 12, 24, and 36 month terms are relatively unchanged, so there does not appear to be an advantage for locking into long term fixed price products from a pure price perspective, although short terms locks of 6 months to one year will provide customers with a great deal of price certainty this coming winter season and into next summer for the 12 month product. Variable price products may be lower, but will lack the protection of a fixed price product to protect against cold weather related effects on natural gas demand in the winter season.
Natural gas prices continue to trend down, and so far this summer has been wet throughout the markets that are open to choice. Both of these factors are putting downward pressure on electricity demand, causing power prices to be stable during a summer period where we traditionally see high demand, and high wholesale market price spikes. As a result, variable price products, while providing limited upside price protection, has generally been an attractive product from a pure price perspective. Fixed price products, while providing increased price security, are at a premium to the downward trending variable price products.
For week ending 8/23, natural gas continues its upward trend we have experienced for the past 2 weeks. No significant changes in weather and the weekly EEI gas storage report came in under estimates which usually translates in a short term uptick in the 12, 24, and 36 month forward strips. Summer volatility season has come to an end, although September historically has also seen some commodity price volatility driven by hot weather. The forward prices continue to stay in the $3.50 - $4.00 range, albeit at the higher end. As we begin to get into the more active months of hurricane season, risk of Atlantic storms increases, although commodity markets have proven to be less vulnerable to these storms than they have been in the past. Risk adverse customers should continue to look to lock their electricity rates in before the winter season. Variable or index customers have been somewhat fortunate with the lack of volatility in the wholesale energy markets this summer.
Copyright 2010-13 EnergyChoiceMatters.com
Michigan electric rates continue to increase as the state lacks the price competition present under electric choice to discipline pricing.
Rates in all sectors are higher than they were one year ago, Energy Choice Now said.
"Over the last year, Michigan’s rates jumped 3.7 percent – far more than the rate of inflation, and more than double the regional average increase of just 1.5 percent. Meanwhile, rates in Illinois, a state that continued with competition when Michigan re-monopolized its electric system in 2008, dropped by 4.7 percent," Energy Choice Now said.
According to Energy Choice Now, Michigan’s overall electricity rates in May were 16 percent higher than the regional average. Industrial electric rates were 23 percent higher and commercial rates were 14.5 percent higher. Residential rates were 15.6 percent higher than their regional counterparts.
The latest numbers from the U.S. Energy Information Administration, which reflect data from May 2013, show that Michigan needs electric competition soon before it falls even further behind its neighboring states, said Wayne Kuipers, executive director of Energy Choice Now Michigan.
"Our business members tell us time and again that energy is one of their top three cost drivers – that electricity rates are paramount when companies are deciding whether to expand or contract, to create jobs or lay off workers," Kuipers said. "Because of Michigan’s electric monopoly, our businesses have to dig out of a hole from the very beginning. That’s not a business-friendly climate."