Luthin Associates – Ahead of the Curve When it Comes to Storing Energy

In May 2014, we published our monthly newsletter titled, “The Energy Bottom Line”. The newsletter informs readers about storing energy in batteries to save money in the long run. 

We were excited to learn that our newsletter was picked up by Smart Grid News, a news source for the modernization and automation of electric power. In their post, Smart Grid emphasized that energy storage is turning a corner, just as we had predicted!

CEO, Catherine Luthin will be giving a presentation to learn more about the storage of energy at the 37th World Energy Engineering Congress (WEEC), being held October 1-3, 2014 at the Walter E. Washington Convention Center in Washington, D.C.

Now in its 37th year, the WEEC is well-recognized as the most important energy event of national and international scope for end users and energy professionals in all areas of the energy field.

You can read the May 2014 newsletter below:

The_Energy_Bottom_Line_May_2014_Page_1 The_Energy_Bottom_Line_May_2014_Page_2

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Will Loss of Coal-Fired Plants Put Us On A Power Price Tilt-A-Whirl

Published to LA Confidential, Summer 2014

Recent regulations by the US Environmental Protection Agency (EPA) are causing some coal-fired power plants to shut down, either permanently or for extended periods for retrofits. Dire predictions are being heard about how that could cause wholesale and eventually retail power pricing to rise by 30%. Could that affect local electric bills?

Starting next year, several EPA regs are hitting coal-fired plants disproportionately due to their high emissions per kilowatthour (kWh) of mercury, toxic materials, and nitrous and sulfur oxides. The cost to retrofit plants to cut those emissions is causing about 20% (roughly 60,000 megawatts (mW)) of U.S. coal-fired output to be retired, with most of that being east of the Rocky Mountains. Some of those plants have already closed, while other retirements will be spread out over the next 2-4 years.

A significant permanent impact on electric bills in the New York City area is unlikely, but greater price volatility may occur. While the mix of generation varies among local retail power suppliers, most of the load in the region has a similar profile as Con Ed’s, according to the PSC Fuel Sources and Air Emission Report. In 2011 about 4% of the electricity for the Con Edison territory was generated by coal. This information can periodically be found on your bill insert (the one people throw away without reading) that accompanies your electric bill.

But other parts of the nation which are heavily dependent on coal-fired power may feel a price pinch during the next few years. Indiana, for example, gets 84% of its electricity from coal. A study by Indiana-based Purdue University is forecasting a 32% rise in that state’s average electric rates if all projected coal-fired plant retirements occur.

While only 1 gigawatt (1,000 mW) of coal-fired power in the NYISO is slated for shutdown, at least 25 gigawatts are due for retirement in the PJM Interconnection, which includes New Jersey. PJM is 42% dependent on coal. As a result, price impacts may occur in that grid region, though they will likely vary by zone.

The next round of EPA regs, which relate to carbon output from all power plants, was announced in June. Since burning coal results in twice the carbon output per kWh of natural gas (and nuclear and renewables have no carbon emissions), EPA’s carbon rules will hit coal-fired units more than other power sources. Those new rules will impact existing plants, while other regs announced in 2013 will limit units yet-to-be-built. These plants will be limited to 1,100 lbs/kWh. This is less than half what most coal plants emit.

EPA can’t directly set carbon limits on existing plants, but it can require states to create plans that cut carbon emissions related to electricity. About 75% of carbon emitted from making power comes from coal-fired plants. Unless delayed by court action, those state plans are due by June 2016, with implementation starting within a year thereafter. Such plans could include a variety of carbon-shedding efforts, including converting some coal plants to gas: improving energy efficiency in buildings; and, increasing renewable energy production. The goal is to cut power-related carbon by 30% by 2030, with interim reductions before that date, relative to the level seen in 2005.

The loss of some coal-fired capacity (regardless of location) has already resulted in greater demand for gas-fired power to make up the difference. Expect a ripple effect on power pricing as coal plant shutdowns cause natural gas demand to rise, and thus the cost of power from gas-fired plants. In 2011, 52% of Con Edison’s electric power was generated from gas-fired plants. Even with increased gas production from hydraulic fracturing (“fracking”), high gas demand such as that experienced during last winter’s Polar Vortex, may lead to volatile gas pricing and thus volatile power pricing. While other power sources, such as wind turbines, are helping to mitigate overall demand for gas, their capacity has not (in most states) been growing as fast as coal capacity is expected to drop over the next 3-4 years.

To ride out the tilt-a-whirl of the coming changes, power customers are advised to work with their consultants to evaluate fixing all or part of their forward power pricing for the next few years to “strap themselves in” for the duration.


Summer 2014 LA Confidential

Are We Riding a Legislative Merry-Go-Round?

Published to LA Confidential, Summer 2014

If there’s one thing most political partisans should agree upon, it’s painless ways to cut our energy costs. While many states are working to cut or contain energy costs within their borders, similar approaches are not happening at the congressional level where energy efficiency advocates find themselves back at the same place they started a year ago.

Hopes were high that a bi-partisan bill already passed in the House would also be approved in the Senate, but on May 12, the proposed law ran aground with little chance of re-consideration before the November election.

The proposed law, the Energy Savings and Industrial Competitiveness Act of 2014, was similar to the 2007 and 2005 Energy Policy Acts, which gave us improved efficiency standards for appliances, lighting, HVAC equipment, and motors. This bill also focuses on energy use in buildings as well as training of workers in the field, the addition of new rebates, and the addition of new performance goals for energy efficiency. The level of bipartisanship in both houses led one representative to describe it as rare as a “snowfall in July”.

As has occurred with many other issues, however, this one stumbled when senators not involved in its drafting tried to attach amendments pushing the Keystone XL pipeline and blocking impending regulations to limit carbon emissions at power plants. Senate Majority Leader Harry Reid refused to allow such additions, leading to the usual threat of a filibuster. The Senate voted 56 to 44 to approve the bill, but the minority blocked its passage in the House.

In a statement issued after the impasse, the Republican sponsor of the bill, Robert Portman of Ohio, said, “today’s failure to move forward on a bipartisan energy-efficiency bill is yet another disappointing example of Washington’s dysfunction.” Seven years have now passed without a significant federal law on energy efficiency.

Most energy-related legislative activity is instead occurring at state and regional levels, though it too demonstrates wide differences. Some coastal states are pursuing regional limits on carbon emissions, while some mid-western and southern states have either cut back or limited financial incentives on efficiency and renewables. At least one is also trying to block expansion of solar power output by firms other than utilities.

When visiting other parts of the U.S. (where both power pricing and efficiency incentives are lower), facility personnel based in the Northeast are often surprised to see incandescent and T12 fluorescent lighting, coal-fired boilers, and single-glazed windows in buildings less than 30 years old. Such inefficiencies require federal action to ameliorate them, and we remain hopeful that it will come sooner rather than later.


Summer 2014 LA Confidential

Roller Coaster Power Pricing

Published to LA Confidential, Summer 2014

Last winter saw some of the widest spreads for power pricing ever to occur in the Northeast. Some customers saw monthly bills double or triple, relative to the same month in prior years. What happened, and could it happen again?

Several factors influence hourly and daily power pricing, including the wholesale price of fuels, outage of a power plant or transmission line, or a sudden jump in power demand. Last winter, we experienced a lot of the first, some of the second, and a chunk of the third. The largest impact was the huge jump in the local price of natural gas, which supplies, on average, over 60% of power in the NYC region. The wholesale price of gas at the Henry Hub in Louisiana increased from a norm of about $4 a dekatherm (dTH) to over $7 on several days. The local price for Transco Zone 6 for New York City pushed that up to over $30 a day most of the time and more than $120 on a few occasions.  When natural gas is traded, the difference between the Henry Hub price and a specific location for delivery is called basis.

These high gas prices might have been mitigated in the past by switching to oil but this was not an option this year. The fuel oil supply and delivery infrastructure in New York City has shrunk significantly in recent years.  As a result, sufficient fuel oil supply was not often available to mitigate the distress caused by high gas prices.

Federal regulations treat pipelines as common carriers and limit the profits of pipeline owners. But once that capacity gets “rented” by investors and speculators, the sky’s the limit on what they can add to local gas pricing for the use of the pipe. Likewise, any other type of capacity holder e.g., gas supplier or utility, can “release” it at the prevailing value. A bump of $1 per dekatherm of gas used to make power roughly translates into a rise of $.01 per kilowatthour. During days that gas hit $120, wholesale power costs reached over $1 per kilowatthour. Due to the grid’s hourly pricing mechanism, that “clearing” price gets paid to all supplying generators – gas, hydro, oil, and nuclear, regardless of their actual operating costs. That may push short term retail pricing up very high. Worse, unlike the electric markets, the natural gas markets do not have open and transparent price setting mechanisms to prevent self-dealing and other market power abuse by capacity holders. To provide fixed price power without going broke, generators may instead lock in the basis for the gas they buy, but that adds to the energy prices we pay.

Once gas demand drops, however, the value of pipeline capacity crashes to only pennies or maybe a dollar per dekatherm. The clearing price for power then also dives; contributing to a roller coaster ride that makes the Great White in Wildwood look tame.

Some utilities “hedge” by using financial tools to limit price swings for their smaller customers. Many customers, however, are moving more toward variable energy pricing, essentially passing through the wholesale cost of electricity with all its volatility. For their larger customers, several New York City area utilities already charge floating energy prices that closely follow hourly or daily wholesale markets. Thanks to the proliferation of smart meters reporting kilowatthours (kWh) use in 15-minute periods, the demand threshold (kilowatts) for such pricing is gradually dropping. In NJ, customers with peak demands over 750 kW are affected, and there’s pressure from retail suppliers to lower it. Up the Hudson Valley, the limit is 250 kW. In Con Edison, it may drop from the present 500 kW down to over 300 kW in the near future. That will push almost 1,000 customers presently taking utility commodity service to consider buying from a competitive retail supplier to achieve rate stability.

Until more pipeline capacity gets added and new market rules bring transparency to pipeline capacity and gas commodity trading, expect this ride to continue. As buildings shift from fuel oil to natural gas for space heating, competition for gas during cold spells will only increase, providing an easy target for basis speculators. To protect yourself, ask your energy consultant for ways to craft purchasing strategies that mix floating and fixed pricing to capture the benefits of both, while limiting the downsides of each.


Summer 2014 LA Confidential