Energy is an interesting beast. Aside from the fact that it can be traded as a commodity, energy also is monitored much like the stock market is – economy and weather swings the market. And much like a company’s stock price; a company’s energy profile should also be handled with care. Most large energy consumers are aware of best energy practices such as: using a broker for procurement, LED lighting/machine efficiency and understanding daily usage. Where this might not be the most riveting information, it is at the very least, crucial to consider as we are starting to head into the winter months (though the weather says otherwise).
Demand vs. Supply- Energy demand charges are fees applied on the utility bill based upon a company’s highest amount of power drawn during a (typically 15 minute) interval during that particular billing period. The demand portion of your bill is charged by the utility company and includes delivery (power lines and power line maintenance charges). The supply section of your bill is charged by your supplier, the company you choose to purchase power from. Because most states are deregulated, a company can choose a different supplier other than the public utility company. Most third party suppliers are extremely competitive with the rates they offer and often are lower than the public utility company.
On-Peak vs. Off-Peak- When a company is consuming energy ‘on-peak’, it simply means that said company is operating when most businesses/people are operating. Think of a regular work day, on peak hours are 10am-8pm. This is when people use the most electricity (mainly because they are awake). Now, BECAUSE everyone is generally using energy at the same time (10-8) the demand during these times is at its highest – which boils down to the fact that it is the most expensive time to operate. Now, is there an alternative you ask? Why, yes there is. Operating ‘off-peak’ means your company is operating while most businesses/people are not, therefore lessening the demand, making energy cheaper. Off-peak hours are generally from 1am-6am and is the cheapest time to consume energy.
Fixed vs. Variable- When you choose a third party supplier, be vigilant of how the rate is structured. Most third party suppliers will have different options. A ‘fixed’ rate means that the supply rate they are offering is locked in for the length of the contract term and is not subject to fluctuations. A variable rate is the opposite. A variable rate is decided by the market which is decided by a number of factors including weather. Long story short, a variable rate will not be consistent and is subject to change.
Swing- A swing option refers to a feature in an energy contract that allows the buyer (customer) to buy a predetermined quantity at a predetermined price while retaining flexibility in the predetermined quantity. In layman’s terms: A 100% swing contract will not penalize a customer for using too little or too much energy regardless of the predetermined quantity. This is a protective measure for the buyer.
Factors that affect natural gas prices- Natural gas prices are primarily a function of supply and demand. Factors that dictate prices on the supply side include: natural gas production, imports, and storage inventory levels. An increase in supply pulls prices down while decreases in supply pulls prices up. Factors that dictate prices on the demand side include: weather (temperature), the economy and the price of petroleum. Low temperatures demand the need for heating while high temperatures demand the need for cooling which increases natural gas demand by electric power plants (natural gas is used to generate electricity). Being as petroleum is an economical substitute for natural gas; if the price of petroleum increases, this leads to more oil drilling. This lowers the demand for natural gas, driving up prices.
Factors that affect electricity prices- Electricity prices generally reflect the cost to operate, maintain, build and finance power plants and the electricity grid. Fuel has a major part in determining electric costs as well. High electricity demand can increase the demand for fuel which, in turn, elevates the price for electricity. Weather is also a key factor in electric pricing. Extreme temperatures will increase the demand for cooling/heating. Natural gas is also used in the generation of electricity so the demand for natural gas becomes a factor in electric pricing.
Keeping the above content in mind, this is where we currently sit in the market:
This past summer recorded the lowest natural gas prices we have seen since 2016. This was largely due to moderate temperatures and a surplus in natural gas storage. But I am here to report that the party is over. We are trading at $2.50 but are expected to see an uptick ($3.00) due to trading finally catching up to the low market and trading higher as well as higher temperatures than usual. The market will continue to trend higher in preparation for the winter ahead.
Written by Kristin DeBias