Natural gas supplier: We'll still take on PSNH
Big spikes in the price of natural gas forced one competitive energy supplier out of the New Hampshire electricity market, at least for now, but other suppliers say PSNH will continue to face tough competition for the foreseeable future.
Wholesale prices for natural gas, which hovered between $2 to $4 per mmbtu (million metric British thermal units) most of last year, started climbing in November, and hit a high of $34.65 on Jan. 24, before going back down to $15.39 on Feb. 19, and $6.18 on Feb. 22, according to Bloomberg News.
"It's been a wild ride over the past several weeks," said Taff Tschamler, senior vice president for North American Power, based in Norwalk, Conn., which began offering energy to New Hampshire electric consumers in December, and claims to already have 20,000 customers.
The company has been mailing and marketing aggressively, with 7.29 cents per kwh guaranteed for six months, compared to the PSNH energy service charge of 9.54 cents.
Competitive energy provider Power New England (PNE), based in Manchester, had to suspend operations last week - while it was in the middle of selling its 8,500 customer accounts to FairPoint Energy - due to financial problems triggered by the rising gas prices.
PNE was more vulnerable than other competitors because it was buying energy on the spot market, rather than relying on long-term contracts with suppliers. Prices for long-term contracts have gone up as well, said Tschamler, but not nearly as much.
Competitors entered the New Hampshire residential market last year for the first time in large part because declining natural gas prices made it possible for them to compete with PSNH, leaving many consumers to wonder if a spike in natural gas prices will cause them to retreat.
Not likely, said Tschamler.
"I would say that prices would have to rise much, much more than they already have, and for many more months of the year, for the market to become unattractive to North American Power. It is attractive today, even with these high prices, because this is just a two- or three-month period of the year when prices always go up. It's not clear they will be like that moving forward."
Kevin Dean is co-president of ENH Power, which started enrolling New Hampshire customers in August of last year, and now claims to have 50,000, with a current offer of 7.28 cents per kwh. Like North American, his company purchases contracts in advance and is not as vulnerable to daily fluctuations in price.
Dean said companies like his entered the New Hampshire market in the past year for several reasons, and historically low natural gas prices was just one of them. Changes in technology, particularly social media, have changed the landscape for marketing energy, he said, and changes in New Hampshire regulatory requirements made PSNH energy more expensive.
It will take a lot more than seasonal variations in the price of natural gas to reverse those trends. "High gas prices are going to affect both the competitive supplier and the utility," Dean said, "so both of us will be affected. Our competitive supply will still make sense because we don't have all the stranded costs that these utilities have."
A problem with supply
While competitors like ENH and North American say they are here to stay, that doesn't necessarily mean prices won't rise, especially given the historically low energy rates consumers enjoyed throughout 2012, based on a remarkably mild winter in 2011.
Wholesale electricity prices in New England fell by nearly 23 percent last year, to their lowest levels since 2003, according to ISO-NE, the independent system operator for the New England power grid.
As long-term pricing is adjusted to reflect the realities of the current winter, consumers will feel the pinch as their current contracts expire. Supply is tightening as more consumers convert to natural gas. There may be abundant gas in the ground, but there is only so much pipeline capacity into the region.
Pipeline operators are planning expansion projects, but they need to have the purchase contracts lined up first, and clear all the regulatory hurdles. Most energy industry observers agree the region is years away from any meaningful increase in pipeline capacity, despite the fact that it is almost entirely reliant on natural gas for electricity.
Price peaks and valleys
The price of natural gas for residential heating has not gone up during the recent spikes on the spot market because companies like Liberty Utilities have reserved capacity at a fixed price, according to Tom Kiley of the Northeast Gas Association, which represents natural gas distribution companies.
"The bills that natural gas consumers are paying are significantly lower than what they were paying four or five years ago," he said, "but they are going to be paying a little more next year. The price increase is not going to be overly significant, and will still be significantly lower than other fuels."
The high demand on a relative fixed volume of natural gas coming into the region has meant that the coal-fired plants operated by PSNH have been activated frequently this winter, according to PSNH spokesman Martin Murray.
"Our largest coal boiler in Bow has been running every single day of 2013," he said. "If we can procure the energy we need more economically in the marketplace, we do so. But New Hampshire is fortunate to have regulated generation to ride out these very volatile times."
While the price peaks and valleys have drawn attention to the region's reliance on natural gas, they have not caused a dramatic increase in prices at the consumer level, at least not for now, except for large customers who decided to take their chance on the spot market.
"Anyone without a firm contract and a firm price has been susceptible to these fluctuations," Murray said.