Roller Coaster Power Pricing

Roller Coaster Power Pricing
Last winter saw some of the
widest spreads for power
pricing ever to occur in the
Northeast. Some customers
saw monthly bills double or
triple, relative to the same
month in prior years. What
happened, and could it happen
again?
Several factors influence
hourly and daily power pricing, including the wholesale
price of fuels, outage of a
power plant or transmission
line, or a sudden jump in
power demand. Last winter,
we experienced a lot of the
first, some of the second, and
a chunk of the third. The largest impact was the huge jump
in the local price of natural
gas, which supplies, on average, over 60% of power in the
NYC region. The wholesale
price of gas at the Henry Hub
in Louisiana increased from a
norm of about $4 a dekatherm
(dTH) to over $7 on several
days. The local price for
Transco Zone 6 for New York
City pushed that up to over
$30 a day most of the time
and more than $120 on a few
occasions. When natural gas
is traded, the difference between the Henry Hub price
and a specific location for
delivery is called basis.
These high gas prices might
have been mitigated in the
past by switching to oil but
this was not an option this
year. The fuel oil supply and
delivery infrastructure in New
York City has shrunk significantly in recent years. As a
result, sufficient fuel oil supply was not often available to
mitigate the distress caused by
high gas prices.
Federal regulations treat pipelines as common carriers and
limit the profits of pipeline
owners. But once that capacity
gets “rented” by investors and
speculators, the sky’s the limit
on what they can add to local
gas pricing for the use of the
pipe. Likewise, any other type
of capacity holder e.g., gas
supplier or utility, can
“release” it at the prevailing
value. A bump of $1 per dekatherm of gas used to make
power roughly translates into
a rise of $.01 per kilowatthour. During days that gas hit
$120, wholesale power costs
reached over $1 per kilowatthour. Due to the grid’s hourly
pricing
mechanism,
that
“clearing” price gets paid to
all supplying generators - gas,
hydro, oil, and nuclear, regardless of their actual operating costs. That may push short
term retail pricing up very
high. Worse, unlike the electric markets, the natural gas
markets do not have open and
transparent
price
setting
mechanisms to prevent selfdealing and other market power abuse by capacity holders.
To provide fixed price power
Picture Above: Wildwood , NJ Boardwalk , Photo: John Luthin
without going broke, generators may instead lock in the
basis for the gas they buy, but
that adds to the energy prices
we pay.
Inside this issue:
Roller Coaster Power
1
Winning the Incentive
Teddy Bear
2
Once gas demand drops, however, the value of pipeline Are We Riding A Legislative Merry-Go-Round
capacity crashes to only pennies or maybe a dollar per
dekatherm. The clearing price Will Loss of Coal-Fired
for power then also dives; Plants Put Us On A Power
Price Tilt-A-Whirl
contributing to a roller coaster
ride that makes the Great
On A Personal Note
White in Wildwood look tame.
Some utilities “hedge” by
using financial tools to limit
price swings for their smaller
customers. Many customers,
however, are moving more
toward variable energy pricing,
essentially passing through the
wholesale cost of electricity
with all its volatility. For their
larger customers, several New
York City area utilities already
charge floating energy prices
that closely follow hourly or
daily
wholesale
markets.
Thanks to the proliferation of
smart meters reporting kilowatthours (kWh) use in 15minute periods, the demand
threshold (kilowatts) for such
pricing is gradually dropping.
In NJ, customers with peak
demands over 750 kW are
affected, and there’s pressure
from retail suppliers to lower
it. Up the Hudson Valley, the
limit is 250 kW. In Con Edison, it may drop from the present 500 kW down to over 300
2
3
4
kW in the near future. That will
push almost 1,000 customers
presently taking utility commodity service to consider buying from a competitive retail
supplier to achieve rate stability.
Until more pipeline capacity
gets added and new market
rules bring transparency to pipeline capacity and gas commodity trading, expect this ride to
continue. As buildings shift
from fuel oil to natural gas for
space heating, competition for
gas during cold spells will only
increase, providing an easy
target for basis speculators. To
protect yourself, ask your energy consultant for ways to craft
purchasing strategies that mix
floating and fixed pricing to
capture the benefits of both,
while limiting the downsides of
each.
Are We Riding a Legislative Merry-Go-Round?
If there’s one thing most political partisans should agree
upon, it’s painless ways to cut
our energy costs. While many
states are working to cut or
contain energy costs within
their borders, similar approaches are not happening at
the congressional level where
energy efficiency advocates
find themselves back at the
same place they started a year
ago.
Hopes were high that a bipartisan bill already passed in
the House would also be approved in the Senate, but on
May 12, the proposed law ran
aground with little chance of re
-consideration before the November election.
The proposed law, the Energy
Savings and Industrial Competitiveness Act of 2014, was
similar to the 2007 and 2005
Energy Policy Acts, which
gave us improved efficiency
standards for appliances, lighting, HVAC equipment, and
motors. This bill also focuses
on energy use in buildings as
well as training of workers in
the field, the addition of new
rebates, and the addition of
new performance goals for
energy efficiency. The level of
bipartisanship in both houses
led one representative to describe it as rare as a “snowfall
in July”.
As has occurred with many
other issues, however, this one
stumbled when senators not
involved in its drafting tried to
attach amendments pushing
the Keystone XL pipeline and
blocking impending regulations to limit carbon emissions
at power plants. Senate Majority Leader Harry Reid refused
to allow such additions, leading to the usual threat of a
filibuster. The Senate voted 56
to 44 to approve the bill, but
the minority blocked its passage in the House.
yet another disappointing example of Washington’s dysfunction.” Seven years have
now passed without a significant federal law on energy
efficiency.
Most energy-related legislative
activity is instead occurring at
state and regional levels,
though it too demonstrates
wide differences. Some coastal
states are pursuing regional
limits on carbon emissions,
while some mid-western and
southern states have either cut
back or limited financial incentives on efficiency and renewables. At least one is also trying
to block expansion of solar
power output by firms other
than utilities.
When visiting other parts of
the U.S. (where both power
pricing and efficiency incentives are lower), facility personnel based in the Northeast
are often surprised to see incandescent and T12 fluorescent lighting, coal-fired boilers, and single-glazed windows in buildings less than 30
years old. Such inefficiencies
require federal action to ameliorate them, and we remain
hopeful that it will come sooner rather than later.
In a statement issued after the
impasse, the Republican sponsor of the bill, Robert Portman
of Ohio, said, “today’s failure
to move forward on a bipartisan energy-efficiency bill is
Winning the Incentive Teddy Bear
Step right up to the shootin’
gallery and see if you can win
one or more of these really cute
incentives!
The NY State Energy Research
and Development Authority
(NYSERDA) and Con Edison
are now offering new and
greater incentives. Unlike most
of those trusty standards, which
were generally aimed at reducing energy consumption i.e.,
kilowatt-hours, the new opportunities (called the Demand
Management Program,
or
DMP) are aimed at reducing
peak demand, which is measured in kilowatts. Peak Demand Reduction is defined as
the system-coincident peak
demand reduction that occurs
during the summer capability
period, between the hours of 2
Volume XII Issue I
p.m. and 6 p.m., Monday
through Friday, from June 1
through September 30, excluding legal holidays. These new
incentives can help businesses
and institutions in New York
City and Westchester County
implement energy improvements that will help manage
costs and improve operational
performance.
The following incentives may
now be obtained from either
NYSERDA or Con Ed for
eligible projects (incentive
rates are per peak demand
reduction kW). Projects must
achieve at least a 50kW peak
demand reduction, but multiple measures and/or multiple
buildings can be combined to
reach the 50kW minimum:





$800/kW for demand
response enablement such
as metering, EMS upgrades, switch gear upgrades, or purchasing
generators. The previous
incentive was $200/kW.
$1,250/kW plus the existing $0.16/kWh saved for
new electric chillers,
HVAC, BMS, and related
controls.
$800/kW plus the existing $0.16/kWh saved for
more energy efficient
lighting.
$2,600/kW for thermal
storage such as ice storage
tanks to shift cooling kW
to off-peak hours. The
previous incentive was
$600/kW.
$2,100/kW for battery-


based power storage that
stores power at night for
use during peak hours
and to meet demand
response requests. The
previous incentive was
$600/kW.
$325 to $600 per A/C ton
for replacing an electric
chiller with a steam or
gas-driven unit. This
funding is also available
for like-in-kind replacements of steam or gas
units nearing their useful
lives.
Incentives for Combined
Heat and Power projects
under NYSERDA PON
2568.
(Continued on Page 4)
Page 2
Will Loss of Coal-Fired Plants Put Us On A Power Price Tilt-A-Whirl
Recent regulations by the US
Environmental
Protection
Agency (EPA) are causing
some coal-fired power plants
to shut down, either permanently or for extended periods
for retrofits. Dire predictions
are being heard about how
that could cause wholesale
and eventually retail power
pricing to rise by 30%. Could
that affect local electric bills?
Starting next year, several
EPA regs are hitting coalfired plants disproportionately
due to their high emissions
per kilowatthour (kWh) of
mercury, toxic materials, and
nitrous and sulfur oxides. The
cost to retrofit plants to cut
those emissions is causing
about 20% (roughly 60,000
megawatts (mW)) of U.S.
coal-fired output to be retired,
with most of that being east of
the Rocky Mountains. Some
of those plants have already
closed, while other retirements will be spread out over
the next 2-4 years.
A significant permanent impact on electric bills in the
New York City area is unlikely, but greater price volatility
may occur. While the mix of
generation varies among local
retail power suppliers, most of
the load in the region has a
similar profile as Con Ed’s,
according to the PSC Fuel
Sources and Air Emission
Report. In 2011 about 4% of
the electricity for the Con
Edison territory was generated by coal. This information
can periodically be found on
your bill insert (the one peo-
ple throw away without reading) that accompanies your
electric bill.
But other parts of the nation
which are heavily dependent
on coal-fired power may feel
a price pinch during the next
few years. Indiana, for example, gets 84% of its electricity
from coal. A study by Indiana-based Purdue University
is forecasting a 32% rise in
that state’s average electric
rates if all projected coalfired plant retirements occur.
While only 1 gigawatt (1,000
mW) of coal-fired power in
the NYISO is slated for shutdown, at least 25 gigawatts
are due for retirement in the
PJM Interconnection, which
includes New Jersey. PJM is
42% dependent on coal. As a
result, price impacts may
occur in that grid region,
though they will likely vary
by zone.
The next round of EPA regs,
which relate to carbon output
from all power plants, was
announced in June. Since
burning coal results in twice
the carbon output per kWh of
natural gas (and nuclear and
renewables have no carbon
emissions), EPA’s carbon
rules will hit coal-fired units
more than other power
sources. Those new rules will
impact existing plants, while
other regs announced in 2013
will limit units yet-to-bebuilt. These plants will be
limited to 1,100 lbs/kWh.
This is less than half what
most coal plants emit.
EPA can’t directly set carbon
limits on existing plants, but it
can require states to create
plans that cut carbon emissions
related to electricity. About
75% of carbon emitted from
making power comes from coal
-fired plants. Unless delayed by
court action, those state plans
are due by June 2016, with
implementation starting within
a year thereafter. Such plans
could include a variety of carbon-shedding efforts, including
converting some coal plants to
gas: improving energy efficiency in buildings; and, increasing
renewable energy production.
The goal is to cut powerrelated carbon by 30% by
2030, with interim reductions
before that date, relative to the
level seen in 2005.
The loss of some coal-fired
capacity (regardless of location) has already resulted in
greater demand for gas-fired
power to make up the difference. Expect a ripple effect on
power pricing as coal plant
shutdowns cause natural gas
demand to rise, and thus the
cost of power from gas-fired
plants. In 2011, 52% of Con
Edison’s electric power was
generated from gas-fired plants.
Even with increased gas production from hydraulic fracturing (“fracking”), high gas demand such as that experienced
during last winter’s Polar Vortex, may lead to volatile gas
pricing and thus volatile power
pricing. While other power
sources, such as wind turbines,
are helping to mitigate overall
demand for gas, their capacity
has not (in most states) been
growing as fast as coal capacity
is expected to drop over the
next 3-4 years.
To ride out the tilt-a-whirl of
the coming changes, power
customers are advised to work
with their consultants to evaluate fixing all or part of their
forward power pricing for the
next few years to “strap themselves in” for the duration.
Factoid Riddle
When it comes to disposal of
trash that can't be recycled,
which way yields the lower
emission of greenhouse gases?
A) burn it in a municipal
incinerator
Volume XII Issue I
B) bury it in a landfill
Answer: Unless the landfill
is capped and its gases captured and burned to make
electricity, the answer is a).
That's because burning trash
(using natural gas, as re-
quired for most municipal
incinerators) eliminates the
methane that would otherwise
be released as the trash decomposed in a standard landfill.
Pound for pound, methane has
about 20 times the carbon im-
pact of carbon dioxide that
results from burning the trash.
Source: Clean Air – Cool Planet Rev. 6.4 software for GHG
inventories
Page 3
...Winning the Incentive Teddy Bear (Continued from page 2)
These are only a few examples
of the many opportunities that
can qualify for these new
incentives.
Here’s how much the new
incentives could raise the
stakes for a lighting upgrade
that reduces peak demand by
100 kW in a building lit for
3,500 hours/year (including
peak demand hours).

Initial incentive: $.16/
kWh x (100 kW x 3,500
hr/yr) = $56,000


Additional
incentive:
$800/kW x 100 kW =
$80,000
Final incentive: $56,000
+ $80,000 = $136,000
(143% higher!)
Incentives are capped at 50%
of total installed cost. The
extra money could significantly cut a payback period and/or
allow deployment of options
such as new LED fixtures that
might otherwise cost too much
to be considered, despite extra
savings.
But wait: there’s more! If the
overall demand reduction is
between 500 kW and 1 mW,
an additional 10% of the kW
incentive would be added. If 1
mW or more is reduced, the
project would qualify for a
bonus of 15% of the kW incentive.
Here’s the catch: This new
money is only for projects
that are completed and fully
operational by June 1, 2016,
and work cannot start until the
project is approved. If your
lighting, chillers, etc. are over
15 years old, or are inefficient,
now is the time to target this
opportunity. Speak to your
energy consultant about how
to take your best shot!
For more details, go to
www.nyserda.ny.gov/EnergyEfficiency-and-RenewablePrograms/Commercial-andIndustrial/CI-Programs/
Demand-ManagementProgram.aspx
On A Personal Note...
Growing up and in frequent
company with my cousins, I
found myself heading to the
shore during the summer.
When we tired of the beach,
we would head to the boardwalk and take our chance in
the amusement parks.
Depending on how old you
are and where you grew up,
the song that comes to mind
when you think of amusement
parks will vary. For many,
“Palisades Park” by Freddy
“Boom Boom” Cannon is the
song they can’t get out of their
head. For Nat DiDonato and
Ellen Northrup, our Brooklyn
kids, it’s “Coney Island Baby,” by The Excellents. The
Beach Boys, always looking
for a commercial hit, had a
song called “Amusement
Parks,” which attempted to
cover many of the amusement
parks in the USA. For many
of us in New Jersey, the song
that is on our mind is Springsteen’s, “4th of July Asbury
Park (Sandy).”
A couple of weeks ago, my
husband and I spent a Sunday
taking pictures of the amusement parks in Wildwood, NJ.
So the song for me is Bobby
Luthin Associates
Energy Management
Consulting
Volume XII Issue I
Rydell’s “Wildwood Days”:
“Whoa whoa whoa whoa those
Wildwood days
Wild, wild Wildwood days, my
baby
Every day's a holiday and
every night is a Saturday night
Oh those Wildwood days, wild,
wild Wildwood days
And then those party lights
wild, wild Wildwood nights”
So while we now spend our
days doing our little part to
ensure that the wise use of
energy will preserve the
beaches and boardwalks for
our grandchildren, the amusement park theme permeates
our newsletter. Wild rides with
ups and downs, shakes, rattles
and rolls are fitting metaphors
for the volatility of energy
markets. The thrills of the
merry go round, a ride that
fills us with expectations but
leaves us where we began,
reminds us of the hope of a
new energy bill that didn’t get
passed. The joy of energy
incentives, much like that
experience when we win a
teddy bear, comes about be-
Photo: Catherine Luthin
cause now we can build that
desperately needed retrofit
that could previously never
meet the expected ROI. All
these images make me realize
we can still bring back those
simple, exciting days and a
little something to keep them
going.
Follow us on twitter
@luthinassociate
Facebook us at
Luthin Energy
Have a great summer!!
Catherine Luthin
535 Main St
Allenhurst, NJ 07711
Phone: 732-774-0005
Email: info@luthin.com
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