Issue link: http://digital.corporatepress.com/i/255499
power tools Purchasing Energy in the Northeast By Jon F. Sorenson 54 | january/february 2014 | Facilities Manager O ver the past two years we have seen an abundance of natural gas throughout North America, fueled by the dis- covery and production of shale gas in the Marcellus Shale in Pennsylva- nia, reaching down to West Virginia and western Kentucky. Natural gas spiked in the futures markets in 2008-2009, reaching as high as $14 per MMBtu (one million Btu.) Today the commodity of natural gas is at approximately $3.50 per MMBtu in the current listing of the NYMEX futures market, which is up from the lows of April 2012. These low prices have allowed industry, colleges, and universities across North America to enjoy low production and heating fuel prices compared to oil, savings millions of dollars and bringing manufacturing back to the United States. A TIME OF HIGH DEMAND However, recently the Northeast, specifically New England, has had some dramatic change in price. New England's primary fuel for electric- ity generation is natural gas. In fact, upwards of 52 percent of the primary generators plus 87 percent of the units used for peaking during extreme heat and cold, are natural gas-fired. As such, as the price of natural gas goes, so does the price of electricity in New England. Last winter, with normal tempera- tures coupled with major storms, ISO-NE (the power grid operator) found that there are not enough pipeline infrastructures to move natural gas to load zones, as the de- mand for heating, at the same time of a need for gas-fired electricity, could not be maintained. This bottle neck in pipeline in- frastructure caused an escalation or spike in daily natural gas electric- ity in the spot or daily market. In addition, for customers trying to make purchases that would hedge or lock natural gas or electricity, the adder above NYMEX, basis pricing also escalated. Basis is one of the adders above the NYMEX future market that is comprised of capacity and transportation to move gas along the pipeline to the local distribution company. The end result was choppy and high spot prices and a substantial increase in hedged prices. ISO-NE estimated that New Englanders paid an additional $2.8 billion in extra fees or charges for electricity and natural gas during last year's heating season compared to the rest of North America. Despite these high prices, natural gas and electricity prices on average were still less than the competing fuel of residual or distillate oil. SOPHISTICATION IN PURCHASING So how do New England-based colleges and institutions handle this issue? Unlike 10 to 15 years ago, purchasing energy has be- come quite sophisticated. Natural gas, both on the spot and futures market, trades each and every day