After the Spikes

The recent  price spikes in electricity and natural gas service are hitting many New York households hard, exacerbating an already difficult situation for customers who owed hundreds of millions of dollars to the utilities for prior service before the spikes made matters much worse.  See  CATCHING UP IS HARD TO DO – NEW YORK’S UTILITY CUSTOMERS AND THE GREAT RECESSION, February 3, 2014, particularly the slides showing customer indebtedness to utilities, numbers of customers more than 60 days in arrears, number of customers receiving termination notices, and numbers shut off for collection purposes.

There are now calls for investigation of the spikes.  At this point, no one knows whether there was manipulation or gaming of the natural gas or wholesale electricity prices.   FERC held a meeting April 1 to discuss the winter spikes.  The New York PSC has scheduled a meeting for May 15, 2014.  Senator Schumer called for a FTC investigation.

According to a FERC staff presentation,  “NYISO also experienced a high level of fuel and cold weather related outages on January 7, which declined significantly during the latter January and early February cold events. * * * *  Staff continues to examine the causes of the forced outages, including ascertaining the extent to which the fuel issues were supply or delivery related.” Forced outages may have contributed to the price spike.  During the very cold weather in January when prices soared, 16% of the generation in the NYISO area was out of service.  This may have placed more reliance on costly gas peaker plants which commanded the sky high spot market prices, which under the NYISO rules, are paid to all sellers, even those not using expensive gas.

Even if there was no manipulation or gaming, it may be worth further study of how power producers buy fuel (spot market or long term contract), how retail utilities buy wholesale electricity , and whether FERC’s deregulation regime has spurred too much reliance upon volatile spot markets and financial derivatives that can dictate huge cost and pricing swings for natural gas and for electricity, with less dampening from long term physical contracts.  See  UNHEDGED!, March 7, 2014.

Gerald A. Norlander

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