Spike in natural gas prices jolts competitive electricity market
The recent spike in natural gas prices has caught energy suppliers off guard -- particularly those that are independent and buy supplies on the spot market -- and was a contributing, if not the primary, factor that forced Resident Power to shed its 8,700 New Hampshire customers, according to sources in the industry.
The Manchester-based electricity provider was in the process of transferring those customers to FairPoint Energy when ISO New England suspended Resident Power's related supplier, Power New England. In the interim, the accounts were transferred to Public Service of New Hampshire.
But it turns out Power New England -- which still serves larger commercial customers -- has already voluntarily been transferring most of its customers back to PSNH to ride out the spike in gas prices.
Ironically, the low price of gas over the past few years has helped alternative energy suppliers compete aggressively with PSNH. The state's largest utility has not been able to take full advantage of lower gas prices because it still supplies some of its own energy generated with more costly methods, particularly an aging coal plant in Bow. Nearly all of its large customers fled PSNH several years ago, and as of December, some 30,000 residential customers also chose to get their energy elsewhere.
Indeed, New Hampshire consumers now get more than half of their power from electricity generated by natural gas.
Natural gas might still be cheap and plentiful -- thanks to a new but controversial technology known as fracking -- but the supply to New England is limited by pipeline capacity, creating what a recent New York Times article described as a "natural gas trap."
"The pipeline hasn't expanded capacity for 15 years, and with gas utilities like EnergyNorth and National Grid converting people hand over fist, that demand eventually adds up," said August "Gus" Fromuth, managing director of Resident Power and PNE.
Last winter was so mild that no one noticed, but the demand shot up during a cold spell in January. This hasn't affected utilities with long-term contracts, however.
"We measure gas prices by the year, not the month," said Alec O'Meara, spokesperson for Unitil. Actually six months is more accurate, since that is the standard contract, O'Meara said. If winter prices hold, those costs will be included in the next rate filing, but that won't affect the utility, just customers.
But electric generators that depend on the spot market "get what's left over after the local distribution companies," Fromuth said. These generators "don't want to commit to a fixed supply of gas. They make electricity when ISO (ISO New England, which regulates the electric grid for the region) tells them to, when it is needed.
"That's why natural gas-generated electricity now sells at a price from three to eight times higher than the amount it did during the warm winter just a year ago.
"Business wasn't financially prepared for this," said Emile Clavet, part-owner of ENH Power, a Maine-based company with offices in Portsmouth with some 45,000 residential and small business customers in the Granite State. "I can't speak for PNE, but ENH runs a fully hedged book of business. When a customer signs up for a year, I buy that year's power right away. I have it in the bank. That eliminates the financial risk."