The Federal Energy Regulatory Commission (FERC) has released its Winter 2014-15 Energy Market Assessment. Most years it would not be a newsworthy event, but given the high prices experienced throughout the Northeast last Winter.. this update is highly topical.

The report is worth reviewing, but we will summarize it here.

• Weather forecasts are not certain— there are some forecasts that call for warmer-than-normal temperatures. Other forecasts predict a Winter similar to last year’s. Says FERC:

As always, weather is the key wildcard going into the winter and is the main driver of natural gas demand and prices. Most forecasters give a low probability of a repeat of the cold winter of 2013-14. However, they believe that a colder than normal winter is a risk, particularly as a weak El Nino develops.

• One of the stated causes of last Winter’s high NY prices was pipeline constraints to New England. According to FERC,

With no new pipeline capacity planned until 2016, the region will need to rely on fuel diversity to meet the region’s energy needs.

• Finally, another oft quoted cause of volatility, and this is related to the former point, is the fact the New England has retired non-gas fired power plants. FERC makes the following point on this issue:

Gas-fired generation in New England has grown from approximately 44% of capacity in 2013 to 47% in 2014 as two large non-natural gas plants that supplied the region last year retire. The increased dependence on natural gas in New England should tend to increase the volatility and overall price of power in the region.

To the good news. Gas storage has recovered since last Winter. So while there is uncertainty and a high degree of caution as we approach this Winter, the good news is that natural gas remains plentiful and non-Winter electricity forwards are near historic lows.

Bottomline for energy buyers and consultants. How you process and act on all this information should depend on your appetite for risk. There is some chance that Winter prices decline significantly if this Winter turns out to be warmer than expected. On the other hand, the underlying issues remain that caused very high day-ahead and forward electricity prices last Winter.