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Fall 2014 Issue 16

Welcome to Howell Energy Consulting

Howell Energy Consulting brings you the opportunity to focus on the core mission of your business, while allowing an energy professional to create competition for your electricity and natural gas requirements through managed procurement.

Howell Energy Consulting is a licensed energy professional in Connecticut and Massachusetts. For more information :

email :[email protected]

phone: 860-205-3863

web site: HowellEnergyConsulting.com

Energy Price Outlook: Time to put a plan in place

This past summer New England had a short period of relief from the high energy prices resulting from the natural gas pipeline constrained cold winter. Midway through June, natural gas transportation prices along the interstate natural gas pipeline began to fall and power prices fell as well. From the end of May to the end of July natural gas transportation prices and power prices fell 25% and 16% respectively. As of September 24th these declines had all but disappeared. The drop in prices for natural gas pipeline transportation and power was in part due to a summer that was over 14% cooler than both last year and normal which reduced demand. As the summer ended and natural gas utilities began buying their winter requirements prices ran back up.

So New England is back in the same place it was last fall with the difference that suppliers now know how much the lack of natural gas pipeline transportation can affect prices. Graph A, shows the cost of purchasing wholesale power at the New England hub for a 12, 24 or 36 month term. To present a single price for each term and point in time, on and off peak prices were weighted by the number of on and off peak hours to produce an "Around the Clock" (ATC), price. The drop of 16% and the recent rise are apparent. Another cold winter will simply send these figures higher.

Three things to note from Graph A:

Prices for the 24 and 36 month terms reflect the expectation that additional natural gas pipeline capacity is coming. The discount for buying 24 months is roughly $.004/KWh and 36 months is roughly $.008/KWh.
CL&P and UI have or are soon to be buying at these high prices to supply 2015 (see the sidebar Higher Prices are on the Way).
A cold winter will make prices go higher yet.

Adding additional concern this year is the loss of Vermont Yankee which increases New England's dependence on natural gas. As one client put it, " forward prices are insurance against outcomes that are even worse than the cost of the insurance." That is correct and those customers that took a market price product last winter would definitely buy the insurance.

Graph A:

SRC: CME

Looking Ahead

As discussed in the Summer 2014 newsletter new natural gas pipeline capacity will not be arriving until the fall of 2016 (Algonquins AIM project). In the fall 2017 and 2018 both Algonquin and the Tennessee pipelines are anticipated to complete additional projects (see the sidebar, Natural Gas Pipeline Update. As noted above a retail customer should create a term that will best mitigate higher costs. Each addition to natural gas pipeline capacity will reduce forward prices so it is important to focus on the natural gas pipeline completion dates when considering what term to purchase. The two major expansions, the Algonquin AIM and the Tennessee expansion, Northeast Energy Direct, are projected to be completed by November 2016 and November 2017 respectively. The first softening in prices won't come until the relief is operational. To bring some of the benefits of the additional natural gas pipeline capacity forward, consider a term that ends in the fall of 2017. For any term the lowest market price will include as many non-winter months as possible.

Natural Gas Storage:

There is at least good news on the natural gas storage front. The cold winter had taken a large bite out our natural gas reserves and there was a lot of concern that US reserves for the Winter of 2014-2015 would not be large enough. A cool summer combined with high levels of production allowed for a substantial amount of natural gas to be pumped into storage. In fact, since the start of the injection season in April, the average injection of natural gas into storage has been roughly 20 Bcf/week higher than last year and the five year average (see Graph C). As of September 17th, the EIA projected that natural gas storage would reach 3,477 Bcf, roughly 90% of last years level. While the good news is natural gas storage will be adequate to meet demand this winter, it is also possible that if the winter is cold that the storage deficit could be deeper than experienced last spring. Commodity prices should not be expected to dip unless the winter is warmer than normal.

Weather:

Long term weather forecasts need to be taken with a grain of salt (maybe the a whole shaker!). With that caveat some meteorologists are calling for a colder than normal winter based the probability (as high as 73%) of an El Nino forming in the Pacific. Traders though buy the rumor which has created underlying pressure on prices in the near term. Reversals of this outlook or should the cold weather not pan out will create buying opportunities.

Overall Outlook and Wildcards:

The biggest wildcard in the next three months is the weather. Warmer than normal weather will reduce natural gas storage withdrawals as well as result in a sell off of natural gas pipeline capacity. A warmer than normal winter could reduce power prices by $.01- $.02 on a 12 month or longer term product.

Procurement strategies for the next quarter:

If you do not have a contract with a suppler, now is the time to do so! Get protection from what are likely to be CL&P and UI standard offer prices that may be over $.12/KWh.

The termination date of any new agreement will be important in determining the final price, so get a contract that includes as many non-winter months as possible. The minimum expiration date should be November 2017. This will allow the supplier to pass forward the benefits of the completion of the first piece of the natural gas pipeline expansion.

Use good news on natural gas storage and weather to help get slightly better prices than initial offers. We will need to work together closely to try and benefit from good news about the weather or natural gas storage.

To understand how these strategies apply to your business call Howell Energy Consulting to create a procurement plan for your organization.

For more information on the Winter 2014-2015 Weather Outlook:

http://www.liveweatherblogs.com/index.php/community/groups/viewdiscussion/178-winter-winter-outlook-2014-2015-u-s-winter-forecast?groupid=16

Graph B

Graph C

About Derek Howell

With over 30 years in the energy industry and 15 years of experience in the deregulated energy business, Derek Howell's expertise covers the broad expanse of the electricity and natural gas markets.

Prior to the founding of Howell Energy Consulting. Mr. Howell was Direct Energy's Director of Retail Pricing for the New England and New York regions.

In This Issue

Energy Price Outlook

Higher Prices are on the Way!

Natural Gas Pipeline Update

Higher Prices are on the Way!

Connecticut Standard Service rates for January - June 2015

CL&P's and UI's Generation Service Charges for the period January through June 2015 have not yet been released but there are some indications of where these rates may be headed.

CL&P on September 25th did release the price that large Rate 55 and Rate 56 customers will see for the months of October - December 2014. While the October and November prices are below $.10/KWh, the December price is $.164/KWh!

In Massachusetts, National Grid which serves a large portion of of the state released its prices for the November 2014 - April 2015 period. The lowest rate published was over $.15/KWh!

Connecticut Rate 30 and residential customers should not be surprised to see a CL&P or UI rate of over $.12/KWh for the period January-June 2015. Large C&I customers may see monthly prices over $.20/KWh for the months of January and February.

Natural Gas Pipeline Update

One of the issues at the heart of the natural gas pipeline expansion is the difference in planning and investing time frames of natural gas pipeline companies and market based power generators. For natural gas pipelines to expand they are required to seek 15 year contracts for the additional capacity. Power generators though have very short three year planning cycles linked in part to generation capacity markets. Unfortunately it is these natural gas fired generators that are the source of New England's added natural gas pipeline requirements. To try to find a work around the New England Governors through the New England State Committee on Electricity (NESCOE) met this past summer to review a number of proposals on how to create a bridge between the pipelines and generators requirements. Unfortunately no agreement came out of this meeting.

Utilities though have the same investment time frame as the natural gas pipelines. So from a investor stand point New England was back where it started with utilities as the only viable pipeline backers. Filling the vacuum left by the Governors, Spectra, owner of the Algonquin pipeline, and Northeast Utilities jointly proposed the Access Northeast project. The Access Northeast project is expected to add additional capacity and deliverability to New England's natural gas generators, 60% which are sited on the Algonquin Pipeline.

There are a lot of pipeline projects proposed for New England at the moment. How much additional capacity does New England need? In a presentation provided to NESCOE by Law Seminars International, the region requires an additional 1 million Dth/day or 1 Bcf of additional natural gas pipeline capacity. As of September 2014 nearly 2.4 Bcf/day has been proposed so it is unlikely that all of the proposed projects will be completed. From a consumer's perspective we hope that there will be some excess capacity so that our power and natural gas prices will be driven down.

Shown below by pipeline company are the projects, projected in-service dates and potential capacity.

Natural Gas Pipeline Scorecard

Spectra - Algonquin Pipeline Total Proposed 1.54 Bcf/day

Algonquin Incremental Market (AIM) - 340,000 Dth/day, expected to be operational November 2016.

Atlantic Bridge - 600,000 Dth/Day, expected to be operational November 2017.

Access Northeast - Up to 600,000 DTh/day at increments of 200,000 Dth/day, expected to be operational in November 2018.

Kinder Morgan - Tennessee Pipeline 500,000 Dth/day

Northeast Energy Direct- 500,000 Dth/Day, expected completion November 2018

Portland Natural Gas Transmission System 350,000 Dth/day

Expansion of existing line, up to 350,000 Dth/Day, expected to be operational as early as November 2016.

If you would like Howell Energy Consulting to discuss how to navigate through this period of tight natural gas pipeline capacity please contact me at :

[email protected] or via phone at 860-205-3863.

To learn more about Howell Energy Consulting Go to:

HowellEnergyConsulting.com

Derek Howell
Howell EnergyConsulting LLC

howellenergyconsulting.com

860-205-3863