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Why does incremental usage matter? – TMT

February 23, 2021 – Why does incremental usage matter if you have a fixed rate for natural gas? In this video, Senior Energy Advisor Calvin Cornish, CEM explains why you may be at risk of higher prices even if you have a fixed natural gas rate.

Video Transcript

Thanks for tuning in as we wrap up this month’s theme of answering frequently asked questions. This week’s question: How can I be at risk of higher prices if I’ve already locked in a rate?

The short answer: monthly and daily balancing. The slightly longer answer is this week’s Two-Minute Tuesday.

What is incremental usage?

In an effort to manage risk and reduce cost volatility, the overwhelming majority of gas users regularly lock in fixed rates for some — if not all — of their anticipated usage. The key word there is anticipated.

The difference between your expected usage and actual usage is balanced on a monthly basis. This incremental usage shows up on your bill as a buy or sell based on market rates at the end of the month.

In a typical month, this variance should be minimal; however, large deviations in volume or price can have a noticeable impact. In extreme cases like the Polar Vortex or Winter Storm Uri, the increased volume combined with spiking rates can result in monthly balancing that doubles your supply cost.

Daily Balancing

So, what about daily balancing? When a utility calls a critical day like most did last week, suppliers are subject to very tight daily restrictions, where any deviation from those can result in massive penalties from the utility.

These penalties are in place to protect system stability and ensure that suppliers will purchase and deliver enough gas to meet daily needs, even if they are taking a loss.

A Note on Contract Language

This is where supplier-specific contract language comes into play. Most contracts protect clients against these penalties. Unless you make a huge change, such as shutting down operations without giving notice, you are covered.

As for the extraordinarily high prices incurred on these days, that language varies by supplier and product. It may be very specific, allowing for critical day adjustments. In many cases, it may simply say something like “…price based on a market rate reflecting supplier’s actual costs.”

If you’re not sure about the specifics of your current agreement, react out to your energy advisor.

 

For more information on Critical Days,  check out our recent blog post on how critical days affect your natural gas bills.

As always, thanks for watching, and if you found it useful, please like, share, or comment below.

Special Alert: Operational Flow Order – MES #3

February 17, 2021 – In this special edition of Manufacturing Energy Success, Michael Zaura explains how packaging manufacturers can help relieve stress on the natural gas grid during an Operational Flow Order.

Video Transcript

Hello, and welcome back to Manufacturing Energy Success. This week’s topic was supposed to be on demand response. But, because of the major event that occurred in energy this week, I thought it would be more helpful to cover what has happened and what you can do to help.

What is an Operational Flow Order?

On Monday, Operational Flow Orders (OFOs) were called by natural gas utilities across the country. An OFO or Critical Notice occurs in rare instances when excessive demand puts massive strain on natural gas infrastructure. You may have read about the blackout in Texas and Oklahoma as a result of this.

While we are lucky here to have not experienced anything like that yet, you still may be affected by these orders.

What does this mean for you?

Chances are, you’re going to have higher energy bills not only in February, but possibly in a few months following as well. this is due to extra charges from the utility for any natural gas used above your normal monthly quantities during this critical time.

What can you do?

As a manufacturer, you’re in a unique position — your actions this week can not only reduce your energy usage but also relieve some stress on the grid.

Curtail whatever you can this week. It’s tough to shut off the heat or shut down completely, especially with this weather. But, if you can:

  • Reduce the thermostat a couple of degrees in your facility
  • Turn off some extra lights
  • Idle a production line until the weekend.

These small actions can be a big help to the grid during this time and ensure that energy is delivered to places like Texas and Oklahoma that need it the most.

 

Thank you for watching! If you have any questions about OFOs or ways to curtail your usage this week, please feel free to reach out.

I’ll be back next week with our regularly schedule programming where we talk about another form of curtailment in the form of demand response. This program is a great way to get some of those dollars back into your budget. Stay warm out there!

Energy Tips for the Hospitality Industry – TMT

February 16, 2021 – In this FAQ February video, Strategic Energy Advisor Sam Greenberg tackles a question he’s been asked frequently over the past year by our hospitality clients: “What are other companies doing to stay in business?”

Video Transcript

Over the past 12 months, one could argue that the industry most negatively impacted by the COVID-19 pandemic has been the hospitality industry. In this week’s Two-Minute Tuesday, we’ll be tackling the number one question we were asked by our hospitality clients during this past year: “What are other companies doing to stay in business?”

Two Energy Strategies for Hospitality Clients

2020 was painful for all businesses, but the hospitality industry was one of the hardest hit. Revenue plummeted due to both shutdowns and to lack of demand from people traveling.

Many of these businesses had to get creative to save money. Specific to energy, the two opportunities that ultimately provided the biggest return for our hospitality clients were demand response and electricity agreements.

Let’s take a deeper dive into how these two strategies supported our hospitality partners in 2020.

Demand Response

Let’s start with demand response. As a hotel owner, if you haven’t looked in to signing up for a demand response program, I highly recommend doing so now.

Depending on the area of the country and your utility, demand response programs can pay you money for curtailing your usage in a planned one-hour test event. We’ve seen annual payments for our hotel clients between $5,000 and $30,000 for participating in the program.

Energy Agreements

Along with demand response, the past 12 months has put an extra focus on electricity and gas agreements. Several months of 2020 saw natural gas rates fall to their lowest level in 20 years.

Our hospitality clients took advantage of that market opportunity and were locking in these lower rates for longer terms, some up to 48 months. This was helping them reduce their energy costs, creating budget stability regardless of increases in the market, and ultimately ensuring that their rate was going to be lower than most of their competing hotels who were not taking the same approach.

 

Even if you missed out on the low prices of 2020, there are still opportunities in the current market to fix either natural gas or electricity rates. There is a consensus forming around a bullish energy market in 2021, so being proactive and fixing rates now can protect your budget from these possible increasing costs.

If you’d like to hear more about the topics we covered today or ideas around saving money on your energy, please contact me or any of our Nania Energy Advisors today. Thank you for watching!

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What does an OFO mean for your gas bill?

By AJ Brockman

February 15, 2021 – Our nation’s recent frigid temps have created some changes to the US energy markets.

Due to the high demand for natural gas caused by severe weather conditions, utilities across the country are issuing Operational Flow Orders (OFOs) or Critical Notices.

What is an OFO?

Under an OFO or Critical Notice, every natural gas customer must adhere to their monthly usage quantities indicated on their natural gas agreement/schedule. Any incremental usage above this quantity is subject to extreme market rates, which will impact your bill and ultimately your bottom line.

It’s important to note that these charges are not under your supplier’s control; your supplier is complying with the order that is coming from your local utility. Your supplier remains dedicated to providing you the natural gas you need in accordance with your contract terms.

What does this mean for you?

For those customers who are expecting to use more gas this week for heating, these OFOs could mean increased costs associated with your natural gas. Both your utility and supplier will do their best to protect you from these additional costs, but the risk remains for all gas customers in affected areas.

What can you do?

There are a few basic actions you can take:

  • If you have a zonal building management system and any vacant areas, you can reduce natural gas usage by lowering your heat temperature in any unoccupied area.
  • Turn down thermostats in any unoccupied areas.
  • Try to modulate your temperature settings whenever and wherever possible to reduce gas usage.

While this is directly impacting natural gas rates, electricity rates will likely also be affected. For those clients on an index power product, we would recommend curtailing power usage if at all possible to minimize cost increases.

 

Our offices are open today and our advisors are available, so please reach out to us with any questions or concerns.

Why does your end date matter? – MES #2

Feb. 11, 2021 – In the second video of the Manufacturing Energy Success series, Mike Zaura discusses how knowing the end date of your electricity or gas agreement can impact your bottom line.

Video Transcript

Hello! I am Michael Zaura, and welcome back to Manufacturing Energy Success.

Tell me if this scenario sounds familiar to you. Last night, your phone starts blowing up. You’re getting a bunch of emails about production on second or third shift. You get to the office this morning, and now all of a sudden someone’s out and maybe you’re short-staffed. Or maybe certain production materials didn’t come in as you expected.

The point to all of this is: you have a lot on your plate as a packaging manufacturer. You guys have been busier than ever, and energy might not be high on your priority list.

In this week’s video, we’re going to touch on how something so simple as knowing the end date of your electric or gas agreement can make a big impact on your bottom line.

Why is knowing the end date of your electric or gas agreement so important?

Let’s back up a little. There’s an old rule of thumb in energy that says “Buy your gas in the summer and your electric over the winter.” The thought process was that you use a lot less gas over the summer and less electric over the winter, so prices would be much lower.

That’s not necessarily the case anymore. There’s a number of reasons behind this, but primarily natural gas is used so much in producing electricity now that the market produces opportunities throughout the entire year. You don’t know which month you might find a market opportunity that presents itself.

How does your end date impact your energy purchasing strategy?

Let’s look at two different scenarios when it comes to the end date of your agreements.

Scenario #1

You’ve rifled through all your paperwork and you find out that the end date of your current gas agreement is at the end of March. You have a short time frame in which to look at your options.

The first thing you look at is the number of days you have to terminate with your current supplier. It could be 30 days, it could be 60. You might love your current incumbent but you do want to shop the market and see what’s out there. If you have a 60-day termination clause, now you have to go with that current incumbent and you can’t explore the market.

Couple that with a weather pattern that we’re currently having and prices that have risen dramatically over the last couple of weeks. Now, prices have gone up, and you really have no other options to look at.

Scenario #2

You look through your current power agreement and find out that the end date is December 2021. What are your options?

You can go to market and get rates from suppliers for a December 2021 start date. This gives you a benchmark so you can set up a market watch. A market watch enables you to set a trigger point for a price you’re looking for over the course of the next few months.

Say it’s June and you wanted a five or ten percent savings against that benchmark rate, and the market watch alerts you that the market has hit that point. Now, you have further options.

  • You can sign with the current incumbent and renew your contract with them starting in December 2021.
  • You can go out to market again and see which suppliers might be offering even lower rates than that trigger point that was just hit.
  • Third option, and maybe the best, is a reverse auction platform utilizing technology to get the best of all those worlds.

So, you can see in Scenario 2 that you have many more options to impact your bottom line when it comes to your energy procurement than you do in Scenario 1.

Whether it’s two months, ten months, or even 24 months from now, knowing the end date of your energy agreement can have a significant impact on the options you have. The earlier you look at this will increase your opportunities to make the best decision at the best time for your facility.

Join us next week!

Thank you for watching! I hope you found today’s video valuable. In our next segment, we’ll be exploring a way to create a new revenue stream for your facility in the form of a Demand Response program.

Stay warm out there, and have a great week!

 

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Manufacturing Energy Success #1

“Manufacturing Energy Success” is our new video mini series for manufacturers looking for ways to save money on their energy costs in 2021. Check back every Thursday in February for a new video!

Video Transcript

Hello! My name is Michael Zaura, and I’m a Senior Energy Advisor here with Nania Energy Advisors. Thank you for watching!

This month we’re doing a video series for you, the packaging manufacturer. Each week you’ll be receiving a new topic that will help make you successful in 2021 in regards to your energy planning. Here’s what we’ll be discussing.

Topic #1: Knowing the importance of the end date of your electric or gas agreement and the impact it may have on market timing.

Topic #2: Demand response and creating another revenue stream for your facility.

Topic #3: Energy efficiency. We’ll walk through the steps in the process that can help you reduce your natural gas or electricity usage for your facility.

So, those are the three topics that we’ll cover in this video series. And I look forward to sharing these topics with you each week around this time. Thank you for watching, and I look forward to seeing you next week!

 

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How to Time Your Energy Purchase – TMT

Video Transcript

Hey guys! It’s Becky here with this week’s Two-Minute Tuesday. In keeping with our theme of kicking 2021 off on the right foot, I thought I’d address one of the commonly asked questions I receive from my clients: When should I go to market?

Now there’s no proverbial crystal ball. Everyone knows that. But we used to gauge patterns based off of following weather. So you wouldn’t buy gas in the winter, and you wouldn’t buy power in the summer.

But as the last couple of years have shown us, that doesn’t really exist anymore.

Factors Impacting the Energy Market

We had some of the lowest natural gas pricing in 20 years in March of last year when there was still snow on the ground. The year before that, the fourth of July in 2019 showed us ridiculously low electricity rates.

So how are you supposed to know when to go to market?

Well, let’s slow down and look at the facts.

Year over year, we know that natural gas is down about 25 percent from this time last year. While the rig count has be steadily increasing, it still hasn’t returned to its full capacity.

Meanwhile, exports of liquefied natural gas are at record all-time highs. They’re receiving $14 per MMBtu right now in China, whereas here domestically they’re getting a little over $2. So there’s definitely demand increasing for exports.

However, demand domestically hasn’t returned quite yet. We’ve had a very mild winter, and we’re still experiencing some of the effects of COVID-19 shutdowns. This summer should prove some volatility to return as demand comes back online for both natural gas and power. We hope that production will follow, but at this point it’s still not up to capacity.

That all said, how are you supposed to make a decision on when you should be looking at your options to make an energy purchase?

A Shift in Perspective

I’d encourage you to switch the conversation from savings to risk management. Are you willing to look at some options now and potentially pay a little bit higher than your current contract to have safety and security and lock in for the next three years? Or, are you willing to take on a little more risk and ride the market and see how the change in political parties or social and economic factors play out? How is the vaccine going to have an effect on shutdowns?

It could go either way, it just depends on the risk level that you’re comfortable with as an organization and what you’d like to see as an end result.

So, I’d encourage you to have the conversation now with your strategic energy advisor just so you’re on the same page. You can set up some market watches to start watching pricing if you’re not quite ready to take action yet. But at least you’ll be in the know when the opportunity arises to make your energy purchase.

Thanks so much for listening, and we’ll talk to you next week!

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What is a Price Trigger? – TMT

Video Transcript

Hi! Welcome to this week’s Two-Minute Tuesday where we’re going to be talking about strike prices and fixed price triggers. We’ll be answering some questions about what those are and when someone might use them.

Strike Price vs. Price Trigger

A strike price is more of a technical investment term. When you’re looking at purchasing natural gas and electricity, we’re most likely talking about a price trigger.

A price trigger is when a client authorizes a set market price that the market might go down to, at which point a transaction might be automatically executed or approved to be executed.

When should you use a price trigger?

Here are a few situations where that might be used.

1) Slower Decision Making/Authorization Process

The first is when you have a slower decision making or authorization process. Good examples of this are school boards or condominium associations where they need to have a group vote in order to approve a transaction.

Obviously this isn’t very conducive with market volatility and moving quickly on a price. So what they might do is approve a price trigger and a specific target to be executed in the near future. In this situation, it would be automatically executed based on that target price, so they don’t have to go back and get additional approvals.

2) Multiple transactions

Another situation where someone might use this is a large user who is making multiple transactions. Think of a data center or a large manufacturer for whom energy is a significant cost in the price of their product.

In this case, they’re making many transactions over time, and they want to streamline that process so they can execute more quickly based on market volatility. In this scenario, they may or may not execute automatically.

Often, there’s a buyer or someone in place who can make those decisions, and what they really want is to be notified when the price hits that level so they can give a quick yes or no and then the transaction would occur. But the transaction wouldn’t be slowed down by paperwork or needing to get things signed right at that moment; it’s all been done in advance with the price trigger.

3) Market Monitoring

The third scenario is for market monitoring purposes. We use this often when we’ve got a client with a contract that’s up at the end of the year, and maybe we’re looking to see if the market drops below the current price for a client and we want to take advantage of that.

So in that situation, there wouldn’t be an automatic execution, but that price trigger would set off a notification to let us know where the market’s at so we can look at it and bring it to a client for evaluation and then to potentially make a decision on that.

So those are three different scenarios with three slightly different outcomes on a price trigger. But the core point is setting and approving a target price at which some transaction or notification is going to be exercised in the future.

If you think price triggers might be a good fit for you or if you just have general questions, reach out to your energy advisor for further details.

As always, thanks for watching, and please comment, like, or share below!

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What Is Swing Percentage? – TMT

Video Transcript

If you watched last weekend’s Masters, you saw some pretty sweet swings out there. If you like Masters Champion Dustin Johnson, some might even say he had 100% swing.

In this week’s Two-Minute Tuesday, we talk about natural gas products and what “swing” means.

What is swing percentage?

Swing is a term used in natural gas products to determine how much you can deviate from your monthly usage. The most common products are 0% swing and 100% swing, but you could do something in between as well.

0% Swing vs. 100% Swing

For 0% swing or a fixed price per therm, your supplier will determine how much you use month in and month out based on historical data. You pay a fixed rate for that monthly quantity. Anything you use over that monthly nomination, you will pay the market rate for. Anything less than that, you will sell back to the market at the market rate.

For a 100% swing product, you pay the same fixed rate regardless of deviations in usage. Let’s look at an example.

Example

Say you use 10,000 therms every November. One November, this goes up to 11,000 therms. You were fortunate enough to lock in a rate of $.25/therm.

On a 100% swing product, you would pay $.25 per therm for all 11,000 therms.

For a typical fixed rate, or 0% swing, you would pay $.25 per therm for the first 10,000. But then you would pay the market rate, let’s say it’s $.28 per therm, for the remaining 1,000 therms.

Which swing percentage is better?

So, which is better: 0% swing or 100% swing.

The answer: it really depends on what you’re looking for and what your long-term strategy might be.

100% swing gives you budget certainty. You pay the same fixed rate regardless of deviation in usage in the coming year. Say you’re expecting increased production, maybe you’re adding new equipment, or you’re very risk averse and you’re worried about the cold winter coming up. 100% swing will give you protection from that.

On the other hand, if you’re not planning any major changes in the coming years and your usage has been pretty stable, a 0% swing product might be the best fit for you. Although there’s a little bit more risk involved with the 0% swing product, you get the advantage of paying a lower rate because there’s no risk premium included in the rate like there is with a 100% swing product.

So,  what might be happening in your facility in the near future plays a big role in choosing the right swing product for your gas needs.

When it comes to natural gas products, channel your inner Dustin Johnson and make sure you choose the right swing. If you need help choosing that swing, reach out to one of our advisors.

Thanks so much for watching! If you found this video helpful, please like, share, or comment below.

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TMT: How Oil Impacts Natural Gas Prices

Video Transcript

The coronavirus has had a huge impact on the price of commodities, with oil being the primary media focus in recent months. But did you know that approximately 16 percent of natural gas harvested in the United States comes from oil wells?

In this week’s Two-Minute Tuesday, we’re going to talk about how the relationship between oil and natural gas drives domestic energy prices and give you some tips to control your risk.

How are oil and natural gas related?

If a company produces crude oil in the United States, chances are they also produce natural gas. The two commodities are related because natural gas can be a byproduct of oil drilling. This is called associated gas — otherwise known as natural gas that’s associated with oil production.

With a nationwide average of 16 percent of natural gas (and as much as 40 percent in some areas of the country) coming from oil, it is safe to say that a good chunk of domestic natural gas production is reliant on oil.

What happened with oil prices?

Oil prices absolutely plummeted because of a perfect storm in March and April of this year. Plunging demand due to the coronavirus coupled with an OPEC disagreement on production cuts cause the collapse of oil prices.

There are two consequences of low oil prices as they relate to natural gas:

  1. The immediate impact is it’s no longer profitable to harvest oil domestically and the associated natural gas that comes with it. Oil drillers in the US have higher operating costs and a higher break-even point than drillers elsewhere in the world. The 16 percent value of natural gas coming from oil is reduce or, in some extreme cases, eliminated.
  2. In a longer-term view, sustained low oil prices will cause future development of oil and associated natural gas resources to be cancelled or postponed. This is really a balancing effect of supply and demand. So the longer oil remains low, the larger the potential impact it will have on future supply levels of natural gas.

We’ve seen oil demand come back here in July, almost reaching the same levels as 2019. The Wall Street Journal is also reporting that the worst effect of the coronavirus on global oil demand have passed but will continue to echo throughout the rest of 2020 and beyond. With resurgent cases we’re seeing in the south and talk of additional business closures, this remains to be seen.

How does this impact you?

So, what should you do with this information?

If your natural gas agreement is expiring within the next 18 months, you should absolutely be reviewing your options for renewal. Prompt month prices hit 25-year lows in early July 2020.

If you’re locked farther out, I would also encourage you to review options for extending your natural gas agreement. With the historical low point we’re currently at coupled with risks to long-term production, now may be the time to take some of that risk off the table.

Thanks for watching! If you’d like to review your options for natural gas, my team and I would be happy to help. If you enjoyed this video, please like, comment, and share below.