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January 5, 2022
The prompt gas market is off $0.50/MMBtu on the day and off $1.10 on the week despite a 97th percentile storage withdrawal of 221 Bcf for the week ending 12/30. The market has completely discounted the withdrawal and is only focused on weather as January now looks to be a top 3 alltime warmer than normal month for both PJM and the NYISO. Production has completely recovered from the 10+Bcf drop due to freeze-offs while the Freeport LNG export facility remains offline with no signs of imminent return to service. The Power Market premium in the winter has eroded substantially with the drop in gas and forecasted warm temperatures but there remains a premium in February as winter is not yet over. On the regulatory front PJM has yet to release the results of the 2024/2025 BRA. The issue is the DPL South Locational Delivery Area. PJM FERC filed for a rule change in order for the auction to have “reasonable results”. PJM recently released that if they published the results as modeled that the DPL South clearing price would be 4x higher than would otherwise need to be.
3 year view of the calendar strip price
Massachusetts Approves Mayflower and Commonwealth PPAs:
On December 30, 2022, the Massachusetts Department of Energy Resources (“DOER”) issued an order approving the offshore wind power sales agreements for the Mayflower Wind and Commonwealth Wind projects and rejecting the projects’ requests to renegotiate those power sale agreements. The order is in response to Mayflower Wind’s December 22 filing saying that it is moving forward to develop the Mayflower Wind project but asked to renegotiate its power sale agreements with the Massachusetts distribution utilities. Mayflower is a 1200MW offshore wind project owned by Shell and Ocean Wind. Mayflower cited the current extraordinary global economic conditions, including significant commodity price increases and supply shortages, as the reason for its need to negotiate. Mayflower’s filing comes on the heals of Avangrid’s December 16th filing in which it asked the DOER to terminate the power sales agreements for its 1232MW Commonwealth Wind project.
More Coal Generation Expected to Retire in 2023:
In 2023, 8900MW of coal-fired power generation is expected to retire, 3800MW of which is in PJM. The ability to switch from natural gas to coal generation during periods when gas prices are high is a key option that keeps both gas and power prices relatively low. As U.S. coal plants continue to retire, volatility as well as price levels, will increase.
Governor Hochul signs NY Broker Registration Bill:
In late December, New York Governor Kathy Hochul signed into law Assembly bill A3166A (companion Senate Bill S9414) which requires energy brokers and consultants to be licensed. Once effective, this new law will change the way brokers and suppliers interact with customers in New York. Key elements are:
- Energy broker is defined as "an entity that assumes the contractual and legal responsibility for the sale of electric supply service, transmission or other services to end-use retail customers, but does not take title to any of the electricity sold, or an entity that assumes the contractual and legal obligation to provide for the sale of natural gas supply service, transportation or other services to end-use retail customers, but does not take title to any of the natural gas sold."
- Energy consultant is defined as "any person, firm, association or corporation who acts as broker in soliciting, negotiating or advising any electric or natural gas contract, or acts as an agent in accepting any electric or natural gas contract on behalf of an ESCO." Energy brokers must post a $100,000 bond and energy consultants must post a $50,000 bond. Each must pay an annual fee.
- Energy brokers and energy consultants are required to disclose their form and amount of compensation to customers via a conspicuous statement on the agreement with the customer. If an energy supplier collects broker compensation on behalf of an energy broker or energy consultant, such broker compensation, including the amount, must be added as a provision to the customer agreement. It is expected that the New York Public Service Commission will adopt rules to implement this bill.
PJM BRA Results Delayed:
PJM Interconnection has delayed releasing the results of its Base Residual Auction (“BRA”) for the 12-month delivery period beginning June 2024 because of some anomalies in the results for the Delmarva peninsula. During a December 21, 2022, members committee meeting, PJM notified stakeholders that lack of offered supply in the DPL South zone has resulted in prices that are unjust and unreasonable. On December 23, 2023, PJM made two filings with the Federal Energy Regulatory Commission (“FERC”) proposing changes to its tariff to allow PJM to modify the auction capacity reliability requirement based on the actual participation of generators in the auction. It’s not clear when the results of the BRA will be finalized. The prices that result from the BRA are paid to generators that offer into the auction. Retail suppliers (and therefore customers) pay the price resulting from the third incremental auction which is usually posted a few months before the start of the delivery period.