Summary

As we reported last week in our Energy News post, day ahead prices in New York City (Zone J), the Hudson Valley (Zone G) and the Capital Region (Zone F) have blown up since January, and remain high through February 2013. According to a monthly report from the NYISO, the price spike is due to higher natural gas prices, colder weather, and transmission constraints in the West-East NYISO interface. It is unlikely that these conditions will persist, although the cause is not entirely clear so it is difficult to predict when prices will stabilize.

See the NYISO’s Zonal Map, below.

Here is another view of ISO Zones that shows the interconnections between Zones.

Why do day-ahead energy prices matter?

The New York markets have enjoyed relative market price stability since 2008; until January 2013. As you can see from the chart, below, January 2013 day ahead prices in the zones that we listed above are approaching 2008 levels. For those of you on utility supply (all NY utility tariff rates are based on day-ahead energy clearing prices) or on an index with your supplier, these rates will come as a shock to you and your colleagues in finance, particularly if you developed your budgets based on historical prices. Be prepared with a response to their questions.

This graphic from the NYISO comparing 2012 day-ahead prices to 2013 year-to-date prices illustrates the impact of these higher costs.

What can you do about it?

The good news: Forward markets remain relatively stable. Summer prices for 2013 are still reasonable. That suggests that the markets don’t expect the disruptions that we’ve seen over the past 6 weeks to continue.

1. Since we haven’t seen a significant bump in near-term forward curves, this is an indication that the market does not expect these high prices to persist. The only period in which we see any significant forward price impact is Winter 2014.
2. If you and your finance people are concerned about managing to budgets and having predictable energy costs, you should consider buying a fixed price contract starting in March, April or May. But don’t wait. Do it now before the forward markets bump up as we approach the Summer peak pricing period. You can get pricing now for a contract starting any time in the future.
3. If your facility is larger than 1,000 kW peak demand, you can buy a hybrid product that will dampen volatility and the impact from high day-ahead prices. We explain a block and index product here. Ask a supplier to provide you with a 50% block for summer and next winter.
4. The Megawatt Hour platform provides strategic guidance and transparent pricing. We can help.

Bottom line for businesses: Day ahead prices in 3 major NY Zones are nearing all-time highs. If you are exposed to these prices, there are options. Take control. If you need help, contact us. We can get you pricing and forecasts so you can get your costs in-hand.