Energy Insider Blog

While the 2013 summer months were relatively mild by Texas standards, the first week of September produced one surprise. On 9/3/2013, the Electric Reliability Council of Texas (ERCOT), reported a 15 minute interval Real Time price spike, which neared the current $5,000/MWh price cap.  The market clearing price at 4:30pm (or 1630) was $4,900/MWH or $4.90/kWh when temperatures and power usage were high.  While the $4,900/MW price only lasted one 15 minute interval, the simple average price across all load zones for hour ending 5:00pm was $2,333/MWh, or $2.333/kWh.

Too often, energy risk management professionals focus on one side of the energy equation, specifically the supply contract.  While this is certainly a critical piece of any procurement or strategic energy sourcing approach, it can lead to real value  being left on the table for the end user through too much focus on the supply side.  A thorough energy risk management strategy will account for the possibility of generating additional revenues through participation in various demand response programs.  Of course, the value of those demand response programs will vary based on the type of consumer, their ability to curtail usage,  availability of back-up generation  and which of the  various demand response programs   they choose or are  able to participate in .  With these factors in mind, it is important to evaluate the options for demand response based on each customer’s unique profile.

Basics of Demand Response

On August 21, Governor Rick Perry appointed Brandy Marty to the third seat on the Texas Public Utility Commission that was vacated for six months ago. Ms. Marty, who is an
attorney, has held several positions on Governor Perry’s staff, including chief of staff, deputy chief of staff, and director of Budget, Planning and Policy, among others.

Part 2 of the 4 Major Energy Developments in 2013 deals with two more trends that have impacted wholesale market prices this year:

As we near the end of the summer, it is worthwhile to examine trends that have had an effect on energy procurement in 2013. The focus will be specifically on the deregulated electric and natural gas markets, through the first two-thirds of 2013. The first two developments that will be covered in this blog are:

During the hot summer months in Texas, participants in the energy markets, including the independent system operator known as the Electric Reliability Council of Texas (ERCOT), turn their attention to making sure that there is sufficient generation available to meet power demand.   While ERCOT is unlikely to have significant reliability challenges during the balance of 2013’s summer, there are concerns about whether this will hold true in the future.  In order to address these concerns, some market participants, such as NRG, have argued that Texas should consider implementation of a capacity market, and preferably one similar to the capacity market in the Mid-Atlantic region of the country.

The United States faces a new future with a real possibility of energy independence rather than some pie in the sky notion predicated on unproven technologies.  One of the key drivers behind this new opportunity for energy independence is the emergence of shale gas, particularly in the Marcellus Shale in Pennsylvania.  While there are other areas of the country with larger shale deposits, the Marcellus holds particular benefits because of its proximity to the major population centers along the East Coast.  The boom in natural gas and other petroleum rich products along the East Coast has created opportunities for energy management consultants to manage their clients overall energy expenditures in new ways.

With President Obama directing the Environmental Protection Agency (EPA) to implement policies to curb emissions from coal fired power plants, the Mercury and Air Toxin Standards (MATS) rule taking effect and continued low prices, it has become uneconomic for older and smaller coal plants to install environmental controls. Between 2013 and 2016 approximately 40,000MW of coal generation will be retired.

On July 30, 2013, Direct Energy Business Services (Direct) announced that it was acquiring Hess Energy Marketing, a long-time powerhouse of electricity and natural gas supply in the Northeast.  According to published reports, Direct paid over $730 million dollars for Hess, not including an additional $300 million in working capital.  This acquisition did not shock the industry as Hess had been trying to sell its energy marketing business to focus on its exploration and production activities. This highlights an emerging trend in the energy markets that could have meaningful implications for end users in the energy industry—namely a move towards consolidation.

At the Texas Public Power Association conference on July 24^th, Trip Doggett, the CEO of the Electric Reliability Council of Texas (ERCOT) provided a tremendous amount of information and insight in to the state of the Texas wholesale power market.  Some of the key areas he covered included: