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.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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