I have been looking into NE Electricity rates to see what the implications of declining natural gas inventories will likely be. In summary, I think that people who have an opportunity to lock in today’s rates will benefit. Both NSTAR and National Grid adjust their rate structure twice a year. The next adjustment is due this spring. In June I think that people will get a rude awakening with a dramatic increase in rates for the next 6 months or more.
Much of NE Electricity is generated by burning natural gas. Gas comes from basic supplies on an as needed basis and from reserves stored at various sites. These reserves are headed down well below the average and some are saying possibly to record lows. While breaking the record may be a bit hyperbolic, no doubt we are in unusual territory. We started 2014 at 5 year lows and it has just gotten worse from there . Prices have been relatively slow to respond until recently. However spot market prices are now moving pretty quickly to make up for lost time and have reached levels not seen since 2008 .
The exact impact on electricity prices is still uncertain. Power companies often are able to spread transient cost spikes out over time minimizing their impact. This is very common, for example, with high air conditioning peaks in the summer. However during the winter, both electric power and home heating work in concert to diminish supplies of gas so transients last longer and take longer to correct for. That seems to be what is happening now.
During the spring and summer months demand for gas will have to address the normal generation + replenishing the reserves. Add to that the fact that if the winter weather remains cold they will have to start later and we have the recipe for a long term demand scenario. I think this will force natural gas prices and electricity prices up significantly. The author of this NY Times article seems to agree.
A third party supplier that can offer a contract price over a period of time may be a great option for those who are concerned about price volatility. National Grid and NStar, for example, adjust their price twice a year. Their next adjustment is in June. Today’s prices, that they can charge, are locked in. In June they will change prices in response to the market conditions. It is hard for me to understand how they can go anywhere but up.