CPV Retail Blog: November 7, 2023

New Product Offering

CPV Retail is happy to announce the addition of a new product to our product suite – Load Following Block and Index. This variation on the standard block and index product provides additional flexibility for customers by allowing the fixed price to be applied to a percentage of usage and is not limited to a fixed static quantity which may or may not cover the deviations of consumption due to weather or other factors.

PJM Regulatory Review

Additional Agenda Items

  • The Commonwealth Court of Pennsylvania has stopped the state of Pennsylvania’s participation in the Regional Greenhouse Gas Initiative also known as RGGI. The court ruled that any monies raised under this program is an illegal tax. Pennsylvania legislators of both political parties have been consistently voting against Pennsylvania joining RGGI and this could ultimately end up being adjudicated at the Pennsylvania Supreme Court. The state currently ranks 4th in the battle of carbon emissions.
  • FERC allowed a certain group of companies called the “Chief Companies” to file a late intervention against the proposed settlement of Winter Storm Elliot issues. PJM and several other interested parties filed a petition for a rehearing explaining that the late intervention which came a week after timely interventions needs to be reviewed.
  • Fall outages in PJM are now past the peak and will continue to drop rapidly as the calendar changes and we enter the Holiday season. Clocks go back an hour this weekend!
  • The IMM and PJM continue to scrutinize gas/power integration parameters to ensure plant availability amid valid start-up constraints under difficult weather conditions. After last year’s almost complete melt-down of the grid which was caused primarily by gas supply unavailability PJM is looking for practical solutions that do not include bankrupting power plants.

Market Drivers

Energy Market Update

  • The initial cold weather system of the season lasted all of 4 days but dramatically boosted demand and prices given the magnitude of the outages. Overall PJM prices increased by about $15/MWH in conjunction with a bump in delivered gas prices.
  • End-of-season inventories in the US will top out at 3.8 TCF after today’s 79 BCF injection which should be the final “large” injection of this season. Next week we should see the first withdrawal of this cycle as the market anticipates what a strong El Nino will do to winter weather patterns.
  • Events in the Middle East will need to continue to be monitored due to the potential to impact global energy commodity prices. Interestingly the market seems to be assuming that everything runs smoothly and the current forecasts for above normal temperatures has a high probability of coming to fruition when the system, especially in Europe, is extremely vulnerable to curtailments and shortages with even moderately colder temperatures and/or supply cuts.
  • The Unites States reported GDP growth of 4.7% last quarter although the forecast for the upcoming quarter is for much slower growth. However, a bit of a manufacturing renaissance is currently under way which is significantly boosting energy demand in several states and that along with growth in both oil and natural gas exports will continue to support an expanding GDP.
  • Mountain Valley Pipeline is continuing to make progress towards ultimate completion targeting a Q1/2024 in-service date. The 2 BCF/D pipeline has already announced interest in a compression-only expansion of 0.5 BCF/D which will support additional gas production in southern Pennsylvania and West Virginia and potentially additional industrial growth along the pipeline’s path.
  • The world’s largest offshore wind developer, Orsted, announced plans to scrap its two major US East Coast projects which had a proposed total output of 2.2 GW. A combination of higher interest rates and higher capital costs combined with a need to actually show a profit led to this very difficult decision stated CEO Mads Nipper. The viability of other projects remains up in the air as the question of who can afford to pay the prices imputed in these now cancelled PPA’s.

Potpourri Comments

The only thing I know about weather forecasts is that they will be wrong, and this is especially true about long range forecasts. I have seen forecasts for power usage done on a Friday for the following Monday based on a particular weather model miss by 25% so any forecast beyond 3-5 days is pretty much a good guess. If the long-range forecasts come to fruition, it is like a bullet hitting a bullet meaning a lot of luck was involved. However, it is important to look at what the “industry” meteorologists are prognosticating so one can at least see what everyone else is relying on for their positioning. The super El Nino currently being experienced has multiple “analog” years that weathermen are using to determine what similar conditions in the past were and therefore what might happen this year. Of course, the dispersion of these forecasts as you might guess are extremely wide on the colder than normal/warmer than normal scale. It looks like the forecasters have convinced the market that conditions will tend to be above normal for temperatures in certain parts of the country and colder than normal in other parts. The same can be said for the precipitation expectations with the “wet/colder” predictions all over the place. The market seems to be pricing in nothing going wrong that might interrupt the flow of hydrocarbons and thus both lower prices and lower volatility are prevalent. It is possible that another warmer than normal winter awaits and all will be well, and many have placed their bets accordingly. Let a CPV representative collaborate with you on a procurement strategy that delivers both pricing flexibility as well as risk mitigation because the only thing I know about all these forecasts is they might be right…but probably not.

Forward Pricing

Renewable Energy