Volatile Energy Markets Creating Insurmountable Challenges for Some Retail Suppliers
Some electric and natural gas customers will soon find themselves involuntarily switched to default service. That is because extreme market volatility over the past two years, which most recently has taken the form of a significant runup in natural gas and power prices, has already produced two high-profile bankruptcies in the industry. With forward markets projecting continued and pronounced upward pressure on prices, it is possible that other suppliers will not be far behind.
On March 25, 2022, Volunteer Energy Services, Inc. (“Volunteer”) filed for Chapter 11 bankruptcy protection. In its filing, Volunteer cited the following contributory events: (1) warm temperatures during the winter of 2019-2020 that reduced demand for natural gas, (2) COVID closures in 2020 and 2021 which further reduced its sales, and (3) Winter Storm Uri in mid-February 2021 during which four of Volunteer’s wholesale gas suppliers were unable to supply gas, forcing Volunteer to purchase incremental gas on the secondary market at prices up to 400% times the normal market price.
Volunteer presently provides natural gas and electric supply to approximately 212,000 customers. As part of its filing, Volunteer requested authority to reject all of its retail contracts. As a result, current Volunteer customers will be transitioned to their respective utilities for default supply. Brakey Energy has never contracted any of our clients with Volunteer.
On May 10, Talen Energy Supply, LLC (“Talen”) filed for Chapter 11 bankruptcy protection. In its filing, Talen cited “the significant increase in natural gas prices in 2021 and concurrent increase in power prices,” as the primary reason for the bankruptcy. Talen exited many of its hedges in late 2021 and, with insufficient funds to purchase new hedges, currently finds itself underhedged and exposed to extremely high market prices.
Talen has requested authority to reject nearly all of its retail contracts. Talen will keep its retail licenses so that it can serve certain limited retail customers, which are necessary for operation of its power plants. Customers that are not retained will be transitioned to their respective utilities for default electric generation service. Brakey Energy has never contracted any of our clients with Talen.
If you would like to discuss how current market volatility may impact your energy costs, please contact Matt Brakey.
Take Steps This Summer to Mitigate Your 2023/2024 Capacity Costs
This summer’s capacity cost management period is two weeks away. For customers currently on a generation contract in which capacity charges are passed through, capacity charges are based on the customer’s metered demand during the five one-hour intervals of the year when demand on PJM’s electric grid is at its highest. These peak intervals, or Coincident Peaks (CPs), can occur during the months of June, July, August, and September. The customer’s average demand during Capacity CPs is used to determine its capacity charges for the next delivery year, which runs from June 1 through May 31.
In order to reduce the impact of capacity charges for the 2023/2024 delivery year, customers can implement measures to reduce demand during CPs that will be set this summer. To assist customers in their efforts to reduce demand during CPs, Brakey Energy provides an alert notification system. Customers that participate in the system can opt to reduce electric usage during alerted times.
Brakey Energy has issued a report to our clients that are enrolled to receive Capacity CP alerts this summer. The report discusses historic CP trends and provides our summer peak load forecasts. If you have not received this report, then we do not have you on our current enrollment list to receive summer CP alerts.
If you are not enrolled to receive these alerts and would like to participate, please email Catherine Nickoson. Please also contact Catherine to change your registration preferences, including adding or deleting which employees receive the alerts. This is a service available only to Brakey Energy clients.
Take Steps This Summer to Mitigate Your 2023 Transmission Costs
While capacity cost management is important, many customers can see the most pronounced savings through transmission cost management. Eligible FirstEnergy (FE) and AES-Ohio (formerly Dayton Power and Light) customers can opt out of paying the utilities’ transmission-related riders and instead pay for transmission and other related services to their certified retail electric service suppliers. Participation in FE’s transmission pilot program is narrowly limited to the customers identified in FE’s most recent Electric Security Plan stipulation. This includes Brakey Energy clients. Participation in AES-Ohio transmission pilot program is limited to the first 50 customers that served notice of eligibility to AES-Ohio before November 19, 2017.
American Electric Power (AEP) implemented a similar transmission pilot program as part of its modified third Electric Security Plan. However, unlike in FE and AES-Ohio territory, the billing is not through a customer’s retail supplier and instead is handled directly by AEP. Participation in AEP’s pilot program is limited to a select group of customers.
For customers that enrolled their accounts in one of the transmission pilot programs (or those that intend to enroll for 2023), each customer’s transmission charges for the 2023 calendar year will be based on the customer’s demand during Transmission CPs set in 2022.
In order to reduce the impact of transmission charges, pilot program eligible customers can implement measures to reduce demand during Transmission CPs. To assist customers in their efforts to reduce demand during CPs, Brakey Energy has devised an alert notification system. Customers that participate in the system can opt to reduce electric usage during alerted times. This is a service available only to Brakey Energy clients.
If you are a participating client that would like to change your registration preferences, including adding or deleting which employees receive the alerts, please email Catherine Nickoson.
FE Announces Updates to SSO Rates
Electric costs will be increasing for FE Ohio customers that take electric generation service under the utilities’ Standard Service Offer (SSO). The SSO is the default rate charged by the utility for generation and ancillary services to customers that do not contract with an alternative supplier. The SSO generation rate is higher in the three summer months of June, July, and August than it is in the other nine months of the year. Defaulting to the SSO is an increasingly viable strategy for many – if not most – customers with impending generation contract expirations in FE-Ohio territory.
The current and June 1 SSO per kilowatt hour (kWh) rates for Ohio Edison (OE), the Illuminating Company (CEI), and Toledo Edison (TE) Residential (RS), Secondary (GS), Primary (GP), Subtransmission (GSU), and Transmission (GT) rate schedules are shown in the tables below. These rates will change slightly on July 1, 2022. Also included in the tables are the percent increases in rates compared to the June 1, 2021 SSO rates. Despite the notable percent increase, SSO rates are significantly below prevailing market prices.
Table 1: OE SSO Rates
Table 2: CEI SSO Rates
Table 3: TE SSO Rates
If you would like more information about how FE’s recent rate updates will impact your monthly electric costs, please contact Jennifer Lemley.
The highly competitive generation offers we highlighted in the past for residential customers have long disappeared. We are now recommending customers with expiring contracts default to the SSO until likely May 2023. The SSO rate varies by electric distribution utility but is likely below current market conditions. To the extent you are in an expiring contract, make sure you provide notice to your supplier that you would like to default back to the SSO as to avoid being swept up in an extremely expensive holdover provision.
Brakey Energy has long and often found defaulting to distribution utilities’ Standard Choice Offer (SCO) a prudent strategy for natural gas supply. We encourage our readers to employ this strategy if they are comfortable riding the highly volatile natural gas market. Despite the runup in natural gas prices, we are seeing the SCO produce better pricing than many other competitive offers.
Natural Gas Market Update
The NYMEX price for May settled at $7.267 per Million British Thermal Units (MMBtu) on April 27, 2022. This price is up 36.2% from April’s price of $5.336 per MMBtu. This settlement price is used to calculate May gas supply costs for customers that contract for a NYMEX-based index gas product.
The graph below shows the year-over-year monthly NYMEX settlement prices for 2018, 2019, 2020, 2021, and 2022 to-date. Prices shown are in dollars per MMBtu of natural gas. Natural gas prices have increased significantly since last month in response to inflationary pressures, higher-than-normal domestic demand, record level liquified natural gas exports, and storage levels below the 5-year average.
Figure 1: NYMEX Monthly Natural Gas Settlement Prices
Electricity Market Update
The graph below shows the Around-the-Clock (ATC) 12-month price strip for electric generation and how it has changed over the past 36 months for three Ohio utility service territories: AEP, FE (the ATSI zone), and AES-Ohio (the DAY zone). Prices have increased substantially in recent months in response to skyrocketing natural gas prices.
Figure 2: 12-Month Energy Price Strip
*ATC pricing as of May 18, 2022. Data provided by Direct Energy Business.
The graph below provided by Direct Energy Business shows the May 18, 2020 through May 18, 2022 ATC forward prices for calendar years 2023, 2024, 2025, 2026, and 2027 for the AD hub. The forward price for calendar year 2023 is continuing to trade at an extreme premium relative to outlier years. Although not shown on this graph, the same is true for the balance of calendar year 2022.
Figure 3: AD Hub Calendar Year Strip Prices
*ATC pricing as of May 18, 2022.