LuthINformed – NG Exports to MX

Published to LuthINformed, Issue 10 (September 7, 2016)
In this issue, we take a look at the impact of natural gas exports to Mexico. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…
Natural Gas Exports to Mexico…
Fewer imports from Canada – and greater exports to Mexico – mean that the U.S. is poised to become a net exporter of natural gas either this year – or next. In fact, the amount of natural gas that the U.S. transports to Mexico has risen precipitously since 2000 – and more than quadrupled since 2010 (chart below). By 2019, fourteen new pipelines will more than double current capacity to nearly 15 Bcf/day. And while selling natural gas at higher prices on the world market increases profits for U.S. producers, the price gap between the United States and the rest of the world shrinks, eroding some of the benefits to U.S. consumers and manufacturers.
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Falling MX Power Rates…
As the chart above shows, electricity tariffs for industrial users in Mexico are falling relative to US rates. In 2015, the premium has fallen from 47% to 29%, with the gap expected to narrow further still in the years ahead. Mexican energy prices may fall further since some manufacturers will soon access natural gas from their own pipelines, allowing them to produce their own electricity. Cheaper natural gas and lower power prices can only be good news for Mexico’s manufacturing sector and overall economy.
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The Impact of Greater Exports…
The dynamics of precisely assessing the impact of higher natgas exports are complicated. In a recent report, the Center for Energy Studies found that, in every case, greater exports raised domestic prices “somewhat” and lowered prices internationally. The report goes on to say “the positive impact of higher U.S. gas production exceeds the negative impacts of higher domestic prices associated with increased exports.” The chart above shows these higher export prices. Good news for U.S. producers after last years warm winter, a glut in storage levels and projections for sustained low prices.
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Natural Gas Outlook…

The latest inventory report (above) shows a net increase of 51 Bcf vs. the previous week. Stocks were 238 Bcf higher than this time last year and 334 Bcf above the five-year average. Current natural gas strip prices are listed below:

12 month strip = $2.999

24 month strip = $3.001

Cal Year 2017 = $3.054

Cal Year 2018 = $2.949

(all prices NYMEX only; A/O 9/6/16)

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

LuthINformed, Issue 9 – Energy Losses

Published to LuthINformed, Issue 9 (August 22, 2016)

In this issue, we offer a look at energy losses. This sometimes overlooked factor plays an important role in power pricing and, as it turns out, our climate too. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…


What Exactly are losses?

Electricity losses are the result of technical inefficiency and theft. During electricity transmission, some power is lost through wire resistance, transformers, and other physical causes. This “line loss” occurs at two levels: during transmission at high voltage to a utility, and again at lower voltage as the utility distributes power to customers. In addition, Unaccounted for Energy (UFE) refers to unexpected unmetered electricity use and electricity lost to ground due to equipment failure, faulty wiring, etc. Just how much energy is taken up as Losses and UFE depends greatly on the physical characteristics of the system in question – as well as how it is operated. Generally speaking, Transmission and Distribution (T&D) losses between 6% and 8% are considered normal. See chart below for a state by state breakdown of losses.

Transmission losses are typically included in a zonal price. However, it may not be included in a retail power supply price. This is one very important reason why losses matter to you. Losses are built into utility tariff rates, and typically in fixed-rate commodity prices from retail suppliers (ensure the contract doesn’t say otherwise). Under indexed pricing, however, the price “floats” based upon the hourly wholesale market price. A supplier then adds a per kWh adder that includes capacity, ancillary services and the supplier’s management fees. Line loss may be an extra line item charge. As always, any supply contract terms should fairly protect the interests of both buyer and seller. Failure to take losses into account could mean an unexpected increase in your power price – and budget.

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Retail Suppliers and Losses…

Most retail suppliers use a fixed line loss rate for the term of a contract, but that number varies among suppliers. In indexed bids, some use Con Edison’s standard average of 7.9%, but others offer factors as low as 5.5%. It’s clear that some suppliers use complex loss calculations involving floating factors that cannot be compared in advance, such as:

  • Con Edison’s posted average monthly line loss numbers
  • A rolling, 12-month average weighted rate based on a customer’s particular On and Off-Peak usages
  • Con Edison’s line loss numbers multiplied by a customer’s hourly kWh usage

Con Edison’s hourly loss factor has historically ranged from +26.1% to -12.8%. Line loss can be a negative number because each hour’s loss is initially based on the standard load profile for each rate class, and then corrected in the following hour based on actual data. If your contract allows for a pass thru of losses, then we recomend a quarterly reconciliation based on posted factors; if losses are fixed, then your contract should clearly stipulate the line loss factor to be used.

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ConEd Losses…

Con Edison publishes a monthly supply charge (MSC) for each of its 3 zones (H, I, and J) and which is adjusted for losses. This data can be found  here. In April of 2009, it began publishing Unaccounted for Energy through its ESCo News bulletins, typically three months after the fact (find UFE data here) Those hourly factors, however, are initially based on standardized, system-wide load profiles. They are then corrected in the next day’s (or month’s) line loss percentage for the same timeframe.

Efficiency Gains and Losses…

Recent efficiency developments that improve transmission technology offer real benefits beyond simply minimizing losses. Lower losses equates to very real emissions reductions – smaller losses means less of a need for generation – and the fuel required for it. However, gains in efficiency are only recent and implementation has been sporadic. Data is only available through 2014, and does not necessarily reflect such recent progress (See chart above. Source: EIA).

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Natural Gas Outlook…

The latest inventory report (above) shows a net increase of 22 Bcf vs. the previous week. Stocks were 327 Bcf higher than this time last year and 405 Bcf above the five-year average. Current natural gas strip prices are listed below:

12 month strip = $2.921

24 month strip = $2.952

Cal Year 2017 = $3.012

Cal Year 2018 = $2.946

(all prices NYMEX only; A/O 8/19/16)

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

 

LuthINformed- Issue 8, Common Calculations

Published to LuthINformed, Issue 8 (August 3, 2016)

In this issue, we offer a look at some common energy calculations and conversions. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…

The Importance of Energy Conversion Calculations…

Energy management takes many different forms. From capital intensive efficient technology to simple maintenance. From “fuel switching” to commodity purchasing. If you’re working with energy on a regular basis, it is important to understand the relationship between various energy sources. Ideally, an energy manager has a clear understanding of the true cost of energy – whether that energy is bought, or saved. A working knowledge of basic energy calculations makes this possible. The tables below present commonly used calculations. Please note that price calculations may not be indicative of current market conditions, and are for illustration purposes only…

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Natural Gas Outlook…

The latest inventory report (above) shows a net increase of 17 Bcf vs. the previous week. Stocks were 436 Bcf higher than this time last year and 524 Bcf above the five-year average. Immediately following the release of the report, the futures curve jumped higher due to a lower than anticipated build. Current prices are listed below:

12 month strip = $3.060

24 month strip = $3.062

Cal Year 2017 = $3.132

Cal Year 2018 = $3.005

(all prices NYMEX only; A/O 8/2/16)

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

LuthINformed, Issue 7 – Energy Reporting Best Practices

Published to LuthINformed, Issue 7 (July 20, 2016)

In this issue, we offer a look at energy reporting best practices. As the old adage goes, you cannot manage what you cannot measure. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…

Best Practices in Anomaly Reporting…

The process of looking for energy billing anomalies can increase efficiency and lower costs. Energy usage is generally consistent by season (summer/winter), annual periods (last year/this year) or monthly periods (last month/this month). An anomaly does not necessarily mean that a bill is incorrect. Other factors such as weather, operational changes and fuel switching may create anomalies. In a normal weather scenario we would recommend starting with a 25% variance. The challenge is to find a variance threshold that is small enough to detect meaningful errors without generating excess false positives. Ideally, a variance factor would be consistent across an entire portfolio of accounts. However, this is not always practical. For example, a sewerage water treatment plant’s energy usage may be related to rainfall; or, it may have seasonal characteristics unlike office buildings. The variance factors for these accounts may be different for those reasons. Also, for high dollar accounts, which are generally fewer in number, a lower variance factor may be employed since missing one error can have a significant cost impact.

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Unit Cost Variance Analysis…

A common best practice in auditing is to conduct a Unit Cost Variance Analysis. With increased emphasis on benchmarking in the energy business, the concept of normalization comes into play when using unit analysis. We have found it effective to calculate unit costs ($/kWh, $/DTh, or $/Mlb) and then compare them to the median of some historical period. Ideally, use two to three years of historical data for the analysis – but a twelve month period will suffice if longer periods are not available. Remember that cost components usually vary with seasons; for example, electric delivery rates are significantly higher in the summer because of an additional summer demand charge in the tariff. This may require employing filters to ensure an “apples to apples” comparison. We have found that the median is a better comparison than the average, since averages can be impacted by changes in usage pattern over time. Also, averages will be influenced by the anomaly itself. Again, where average is all you have, it is still an adequate comparison tool. Other types of normalization are based on degree days, facility area, or some other factor such as units processed.

Billing Determinants Analysis…

Billing Determinants Analysis is used to identify unexpected occurrences such as identical demand (see above) or usage across consecutive time periods. We take the position that there are no coincidences in utility billing! Utilities often estimate bills when actual data is unavailable. If a bill is calculated incorrectly, errors will not be identified by analyzing usage anomalies only. So when we see two consecutive bills with identical data, we consider that an anomaly – open for investigation. In a similar manner, bills that are revised more than once a year – or for more than a single billing period – should be scrutinized. We have found that when either of these two conditions occur, we are dealing with a form of estimated billing, meter problems or other systemic issues. Past experience has shown that utilities do not always code or label a bill as estimated.

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Load Factor Report…

Identifies instances where load factors exceed 100%. The load factor is a ratio based on the peak demand to metered electric usage; it cannot be greater than 100%. A 100% load factor would indicate that the account used the peak demand during every hour of the billing period, therefore, a load factor greater than 1 is impossible. Load factor should be consistent with past usage. Incorrect meter readings, defective metering, or improperly estimated bills can be identified using load factor analysis that compares changes over the recent and historical billing record of the account.

Energy Change Report…

Shows total billed energy usage by facility, in millions of BTUs, for the month and the fiscal year-to-date. It also shows the year-over-year percent change in energy consumption adjusted for weather. An effective tool in identifying anomalies across facilities and campuses since a more global, not per-meter, perspective can help identify anomalies which are then analyzed by drilling down to the individual account level.

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Natural Gas Outlook…

The latest inventory report (above) shows a net increase of 64 Bcf vs. the previous week. Stocks were 507 Bcf higher than this time last year and 586 Bcf above the five-year average. Immediately following the release of the report, the futures curve rose slightly despite a higher than anticipated build. Over the past two weeks, strip prices are down slightly. Current prices are listed below:

12 month strip = $3.013

24 month strip = $3.040

Cal Year 2017 = $3.118

Cal Year 2018 = $3.001

(all prices NYMEX only; A/O 7/19/16)

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

LuthINformed- Issue 6, Natural Gas Storage

Published to LuthINformed, Issue 6 (July 6, 2016)

In this issue, we offer a look at natural gas storage and its correlation to prices. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…


The Impact of Storage on Natural Gas Prices…

As we’ve discussed in previous newsletters, weather, economic growth and other factors all impact natural gas price trends. However, short-term prices often react most quickly to the EIA Storage Report announced each Thursday at 10:30am. There are three primary supply-side factors that affect natural gas prices:

  • Variations in the amount of natural gas being produced
  • The volume of natural gas being imported and exported
  • The amount of gas in storage facilities

Price volatility often peaks when the EIA announces unexpected storage levels versus the five-year average level. That is to say, the rate at which storage levels move away from prior levels plays a role in creating periods of high volatility. Of course, weather extremes dramatically impact storage. Our last issue on the 2014 Polar Vortex made this relationship very clear. However, storage operators have the ability to vary their rate of injections during the summer to address imbalances – and to maximize their financial positions. They typically inject at a slower pace in order to meet summer cooling demand, but they must also inject to sufficiently meet next winter’s heating demand.

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Storage vs. NYMEX Settlement…

A commonly asked question is whether storage levels are correlated to NYMEX prices. The chart above illustrates the inverse correlation between natural gas storage levels and historical NYMEX settlement prices over the past three and a half years. During the polar vortex of 2014, storage levels fell to their lowest while prices reached highs. Last winter (2015-2016) was one of the warmest on record – storage levels peaked and prices have fallen. Over the past few months, volatility has lessened and is similar to that seen during the spring of 2012 – the last time inventories were near current storage highs. Add to this picture a general winter warming trend as the chart below demonstrates. This, in addition to recent high production levels, may lead to higher storage levels as we move into the winter heating season.

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How the EIA Gathers Storage Data…

The U.S. Energy Information Administration (EIA) collects data on end-of-week working gas in storage at the company and regional level from a sample of all underground natural gas storage operators. Data is also published at a state level in Natural Gas Monthly which includes tabulations of base gas, total inventories, total storage capacity, injections, and withdrawals at state and regional levels.

How is Natural Gas Actually Stored?

Natural gas is primarily stored underground and most commonly held under pressure in three types of facilities: depleted gas reservoirs, aquifers, and salt caverns. The principal operators of underground storage facilities are interstate pipeline companies, intrastate pipeline companies, local distribution companies (LDCs), and independent storage service providers. About 120 entities currently operate the nearly 400 active underground storage facilities in the Lower 48 states.

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Outlook

The latest inventory report (above) shows a net increase of 37 Bcf vs. the previous week. Stocks were 582 Bcf higher than this time last year and 627 Bcf above the five-year average. Immediately following the release of the report, the futures curve rose. The build was less than anticipated, and traders considered the report bullish. Current strip prices are listed below:

12 month strip = $3.053

24 month strip = $3.075

Cal Year 2017 = $3.154

Cal Year 2018 = $3.022

(all prices NYMEX only; A/O 7/5/16)

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information

 

 

 

LuthINformed- Issue 5, Post Polar Vortex Prices (Continued)

Published to LuthINformed, Issue 5 (June 17, 2016)

Winter Price Spikes…

The extreme winter weather in January 2014 resulted in seven out of the 10 biggest demand days on record for the U.S. The EIA attributed natural gas price volatility in the northeast to pipeline constraints heading into New York and New England from the west and south.

The Long Decline…

Natural gas prices have fallen dramatically since the beginning of 2014 when prices spiked during the polar vortex. The average NYMEX settlement price for 2014 was $4.415/Dth. The average, thus far, for 2016 is $2.022, 54% lower. The NYMEX settlement price has fallen 183% through June 2016.

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Time to act?

The June 2016 settlement price was 183% lower than the highest monthly settle of 2014 which occurred in February. As we approach the summer cooling season, the NYMEX NG contract for July has continually exceeded Henry Hub spot prices, perhaps reflecting expectations for higher summer demand. On its first trading day, the July contract closed more than $0.20/Dth higher than the expired June contract – an unusually high change for a contract rollover at this time of year. NYMEX futures prices have risen 13% in early June. Against this backdrop, an increasingly bullish picture may be emerging. Consider full or partial hedging as a way to capture recent lows and mitigate the potential for further increases…

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The chart on the above, developed by the EIA, projects an overall increasing price trend. It also shows that the potential for substantially higher prices is currently greater than the possibility for lower prices.

Source: EIA, Short Term Eenergy Outlook. Dated: June 7, 2016

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Outlook

The latest inventory report (above) shows a net increase of 69 Bcf vs. the previous week. Stocks were 633 Bcf higher than last year at this time and 704 Bcf above the five-year average. Immediately following the release of the report, the futures curve dipped. The build was more than anticipated, and traders considered the report slightly bearish. The 12 month strip (prompt July) lost 1.1 cents to close at $2.911/dth.

12 month strip = $2.911

24 month strip = $3.029

Cal Year 2017 = $3.044

Cal Year 2018 = $2.989

(all prices NYMEX only; A/O 6/16/16)

Natural gas inventories continue to set year-over-year highs. Strip prices have turned mixed with CY’17 above $3 and CY’18 now back under that level. The market charts below illustrate recent trends.

More…

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For an in-depth discussion on markets, purchasing strategies and other topics, call us here at Luthin Associates. We offer our clients regular market updates and our Energy Procurement Group is staffed with certified experts on energy market conditions.

Luthin Associates

732-774-0005


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

 

LuthINformed- Issue 5, Post Polar Vortex Prices…

Published to LuthINformed, Issue 5 (June 17, 2016)

In this issue, we offer a look at natural gas prices since the Polar Vortex of January 2014. We hope to provide our readers with guidance and actionable information that will be both valuable and useful. As always, your feedback is welcome…

The January 2014 Polar Vortex…

The January 2014 polar vortex caused America to shiver like never before. Temperatures throughout the Northeast were lower than the South Pole, leading to unprecedented energy demand and posing safety risks. Throughout the region transit systems and schools were shut down. As demand skyrocketed, energy markets heated up. In the Northeast, where more than 50% of homes use natural gas as their primary heating fuel, several pipelines issued critical notices and operational flow orders (OFOs) to prevent system imbalances. Natural gas supplies were disrupted and prices reached all-time highs.

The vortex, which also threatened electric reliability, took its initial hold over two brutal days. On January 6, temperatures in in the Northeast fell to an average of -10°F, with a wind chill of -33 °F. On January 7, daytime temperatures bottomed out at 4°F in Central Park and -16°F in Chicago. Let’s further explore these impacts, see where prices have since been, and where they may be headed…

Bandwidths and “Mark to Market”…

In previous issues, we’ve discussed how certain ESCO contracts contain usage bandwidths that give suppliers the option to “mark to market” excess usage – and “pass through” higher market costs to customers. During the polar vortex, natural-gas demand averaged 102 billion cubic feet a day, nearly 8 bcf a day higher than the previous maximum monthly average demand and, all told, 241 bcf more natural gas consumption than any other month on record. Customers whose contracts had bandwidth provisions, and no weather protection clauses, had usage outside their contract allowances. Suppliers charged these customers market prices for the excess – at a time when prices reached their highest levels. How high? On January 6th, the Transco Zone 6 NYC spot price reached $90/Dth. On the 22nd it reached $120. On January 7th, as cold weather and supply constraints continued, the Henry Hub spot price was 39% higher than the year prior (see charts below). Exposure to prices at these levels can lead to immediate, and devastating budget implications. Clearly, a risk analysis and thorough contract review should be performed before entering any competitive supply agreement. An educated, informed decision process requires an understanding of potential risks.

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Next time we will continue with the discussion of post polar vortex prices in relation to winter price spikes and the long decline…


DISCLAIMER

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Luthin Associates, Inc. (Luthin) assumes no responsibility therefore. The user of the information agrees that the information is subject to change without notice. Luthin assumes no responsibility for the consequences of use of such information, nor for any infringement of third party intellectual property rights which may result from its use. In no event shall Luthin be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.