Energy Insider Blog

Every year, Potomac Economics, publishes Independent Market Monitoring (IMM) reports for multiple electricity wholesale markets. The annual reports provide a competitive assessment of such markets.  Over the past several years, the IMM has consistently found that the ERCOT markets are generally competitive and functioning well, although the IMM has always suggested market enhancements.  In the 2012 State of the Market Report, there was significant emphasis in discussing one of the largest challenges facing the ERCOT market—future resource adequacy.  While resource adequacy presents a challenge to ERCOT as the grid operator, it provides opportunities for end users to participate in Demand Response programs as part of a comprehensive risk management strategy.

According to the National Oceanic and Atmospheric Association (NOAA), summer 2013 will be above average in West Texas and in the Mid-Atlantic states.  The outlook both in terms of temperatures (left hand side) and projected rainfall (right hand side) is summarized in the following set of four maps, with the top maps being the outlook for June and the bottom ones the outlook for the entire summer (June-August).

In looking at energy management risks, it is rare to find a scenario where both the supplier and the end user can benefit.  However, with the expansion of demand response programs to include what is called “economic demand response” offers a rare situation where not only do the supplier and end user benefit, but so does society as a whole.

In the 1960s, the Jetson’s was a Saturday morning cartoon staple that included a robot butler, flying cars, and an automated house.  Some fifty years later, flying cars and robot butlers are not quite here, but the ability to fully automate a house is coming to fruition as a result of machine to machine (M2M) technology relying on the vast mobile network which has sprung up in the U.S. and around the world. 

Every year the Energy Information Administration (EIA) provides an updated Energy Outlook that projects future supply and demand trends.  In their latest outlook, released between April 15–May 2, 2013, the findings on natural gas were particularly instructive, especially for energy risk management professionals.  While the Outlook goes through 2040, the confidence level in the projections obviously decreases over time.  Following is a high level summary of the reports’ projections related to natural gas and some thoughts on the impact these trends could have on energy risk management strategies going forward.

While the general framework for electric restructuring is relatively set in most states with retail choice, legislative action continues as interest groups from generators to consumers to suppliers attempt to enhance the market structure.  Following is a list of selected proposed legislation dealing with electric restructuring in California, Maryland, Michigan, New York, Pennsylvania, and Texas.

As we head into this summer, concerns about resource adequacy (tight operating reserves) continue to plague the ERCOT market.  From an energy risk management perspective, end users exposed to Real-Time (RT) or Day-Ahead (DA) prices, should consider locking a Heat Rate Product or a Fixed Price product. Even though heat rates rallied after this release, we recommend end users to be hedged at a minimum in July and August to avoid exposures with either of these products. The reward of not being hedged during these months is not worth the risk. 

Legislation proposed in Michigan for 2012 would have increased the ability of customers to choose an alternative energy provider, enabling Michigan businesses to use strategies to manage energy risks  and remain competitive on a regional and national level.  Nevertheless, this legislation failed to make it out of committee, a sign that Michigan’s failed attempt at deregulation will continue to damage the competitiveness of businesses in the state.

The first part of this 2 part series addressed 3 factors that will impact natural gas and electricity prices in 2013 and beyond.  Part 2 explores the challenges faced by the power sector in terms of future grid reliability, summer weather outlook and the impact of continued drought conditions on power prices.