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MANAGING ENERGY PRICES

Throughout January and February 2014, the Northeast, Mid Atlantic and Midwest experienced record low temperatures that were accompanied by unprecedented energy prices. The cold snap, which began with the polar vortex, produced an enormous surge in demand for natural gas and electricity resulting in extraordinary effects on gas and electric prices.

During January 2014, the average electricity price across the PJM Interconnection (PJM) footprint was approximately 200% higher than in January 2013. PJM is the Regional Transmission Organization (RTO) that coordinates movement of wholesale electricity in all or part of 13 states and the District of Columbia. The main driver of the increased electricity prices was the price of natural gas to gas-fired electric generating plants. In addition, on January 7, 2014, more than 40,000 MW of generation was unavailable during forced weather-related outages. Heating demand caused prices to soar and severe constraints on some interstate pipelines further bolstered gas prices. Customers, especially those utilizing variable or spot market rate structures, recognized the effects of the increased gas and electric costs on their January utility invoices and could see the same in February. Some end-use customers in the PJM region have received bills that are 3X more than bills received for the same billing period last year.

As a result of the skyrocketing gas prices, PJM deemed it necessary to adjust market rules to allow electric generators to factor soaring gas costs. PJM requested the Federal Energy Regulatory Commission (FERC) waive the $1,000 offer cap on power purchased from gas-fired generators for the remainder of the winter heating season, which ends March 31, 2014. FERC granted these requests. Accordingly, it is critical that industrial, large commercial and high volume institutional end users take necessary steps to adequately protect themselves from energy price spikes now and in the future.

The McNees Energy and Environmental (E&E) practice group is uniquely positioned to assist. The McNees E&E team has been at the forefront of investigations into the factors that drove the unexpectedly high and extremely volatile electricity and natural gas prices that occurred during January. The E&E team also has the hands-on experience to help manufacturing and institutional consumers address their individual electricity arrangements and pricing. McNees is also available to evaluate electric supplier energy contracts to determine if the terms, rates and conditions are sufficient in managing risk in such a volatile energy market. Of course, McNees E&E attorneys are available to assist in the design, development, and implementation of new energy supply strategies to better anticipate such extreme weather vagaries and help manage customer risk.

If you would like to learn more about the McNees Energy and Environmental Practice Group and how we may assist with your weather-related fixed utility issues, please contact Energy Management Specialists Dave Mabry at dmabry@mwn.com or 717.237.5334 or Kevin Dean at kdean@mwn.com or 717.237.5366. We will be happy to arrange a meeting with your energy team to discuss in detail some of the fixed utility options that are available for your facilities.

© 2014 McNees Wallace & Nurick LLC
McNees Energy & Environmental Client Alert is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.