New England Dec 2013 Market Update

Things have certainly gotten interesting (or terrible) for energy consumers in New England over the last several weeks. All of the large New England electric utilities have released their default supply rates for the Dec '13 through Feb '14 period and the results are shocking to many. In short, the cost to serve load is well over $0.10/kWh for the months of January and February and we are seeing retail prices not seen in nearly six years. For consumers looking to renew competitive supply contracts or enter into additional hedges (e.g., layered block and index), the present time is not a good one. If you haven't locked or hedged yet, its really too late as the price environment for this winter is officially in crazy town. The graph below illustrates the default supply rates for larger customers in common New England electric utilities. 

NE Default Electric Prices.png

Of the energy brokers and marketers that we work with in ISO-NE, we're hearing that many are advising customers to stay on an index through March 2014 and just take the market price risk due to the massive premiums built into forward power prices. There are a few corners of New England where consumers taking utility default supply service will not be exposed to these prices. New Hampshire Electric Coop and PSNH still have managed power portfolios and their default prices are much more stable............(although above market outside of winter) and will not show such strong price increases over the winter.

Over the last three weeks, the physical ISO-NE Day Ahead and Real Time markets have exhibited significant price volatility which indicates that the forward ISO-NE power prices are directionally correct in that cold temperatures are producing high prices. The scatter plots below show ISO-NE Day Ahead prices in the NEMA zone over the last three weeks and also the last three days where cold weather has driven the highest prices of the season so far. Although we chose to graph NEMA prices, these trends are visible in each ISO-NE zone.

Dec 13 ISO-NE DA.png
Dec 13 ISO-NE DA l 3 days.png

In late November and early December, you'll note that there were occasional price excursions over $100/MWh and these typically occurred during the early evening peak which is typical for this time of year. The graph on the right shows the last three days where prices have really surged. This graph shows a phenomena witnessed last winter where the price separation between the peak and off-peak hours shrinks considerably during cold snaps. A close look at the graph shows that off-peak Day Ahead prices for Dec 11, 2013 are above $150/MWh. 

This is happening for two reasons. The first is that natural gas is the fuel on the margin in ISO-NE and all new generation builds in New England in the last 15 years have been either natural gas or renewables. The second is that winter heating gas demand is increasingly competing with natural gas fired electric generation for scarce natural gas supplies during peak winter conditions. This is not a new phenomena in ISO-NE, but its become more severe in the last two winters. The graph below shows ISO-NE forward power prices for delivery during the peak period (M-F 7am - 11pm) at the MASSHUB delivery point. The graph also shows prices for Basis Swaps for the Algonquin Pipeline City-Gates. Note that each price trend exhibits essentially the same pattern. Electricity prices are on the left axis and natural gas basis prices are on the right axis.

ISO-NE MassHub vs Algon City Gates.png

In the graph above, you can see that prices were elevated in early Nov., but they really took off in the middle of November. January peak power at the ISO-NE MASSHUB is currently going for over $140/MWh. This is driven by the fact that January basis for the Algonquin City-Gates is over $13/MMBTU which represents 3X the price of the gas commodity at the Henry Hub.

If you are struggling with any of these issues and need help, give us a call.