Shortage in the midst of abundance

[Astronuc]

Earlier this year, I experienced a spike in the cost of electricity such that we nearly spent twice as much during Jan-Feb than during the same period a year earlier, and we used less electricity than last year. The argument from the local utility was that there was a shortage, despite abundant supplies, and the fact that they had to buy on the spot market (due to poor planning on their part).

Now we see a shortage of natural gas.

New England Electricity Prices Spike As Gas Pipelines Lag
http://www.npr.org/2014/11/05/361420484/new-england-electricity-prices-spike-as-gas-pipelines-lag

. . . . Between the years of 2000 and 2013, New England went from getting 15 percent of its energy from natural gas to 46 percent. That's dozens of power plants getting built.

But the pipelines to supply those power plants? Not so much.

At the same time, with the fracking boom just a few hundred miles west driving down gas prices, more and more homeowners were switching to natural gas for heating.
. . . .

 

[russ_watters]

Well, utilities have pretty reliable supply, but they aren't perfect so they are are subject to the same market forces as anything else I suppose (though I actually thought the rates had to be fixed over a certain period of time).

 

[Danger]

Here, our utility bills are "averaged". We pay a bit more than we should during months of no furnace use or plugged-in car heaters, in order to not go bankrupt when it drops to -40°.

 

[mheslep]

Well, utilities have pretty reliable supply, but they aren't perfect so they are are subject to the same market forces as anything else I suppose (though I actually thought the rates had to be fixed over a certain period of time).

I believe the electric utilities have different conditions: residential gas for heat is sold as "guaranteed delivery", for which residents pay a considerable premium. The gas sold to the gas-fired electric plant is not guaranteed, so that electric utility gas is cheaper, but subject to market vagaries. The "polar vortex" cold weather last year that drew down NG storage thus meant that gas-electric utility customers were the first to go without, and therefore electric prices would spike.

 

[Astronuc]

In NY, the electrical industry was 'deregulated' in order to increase competition, which would of course decrease prices.

Well - there was no increase in competition, and there was no decrease in price/cost.

Instead, the utilities shed generation and bought off the grid. Well, that reduced reliability, and increased price instability, but off course, the consumer has to pay more. The cost of poor planning is simply passed on to the consumer.

NY is capacity limited, and when someone wants to build more transmission lines, some environmentalists oppose the lines for environmental reasons, but the generation companies oppose the lines that bring less expensive electricity from extra-territorial suppliers.

Why would a utility build gas-fired generation where access to gas is limited or restricted. Well, perhaps because they aren't penalized for bad/poor business decisions - but their customers are.

 

[256bits]

and the fact that they had to buy on the spot market

It is somewhat more complicated than that.
Spot market is what the gas is worth today due to simple supply and demand.
Futures market, and derivatives are what the market is speculated to be in the future.
At certain times the spot price may be better than the future price, at other times not.
Like any commodity, such as energy, metals, pork bellys, grains, you may want to hold off selling today if you expect a higher price down the road, or sell today if you think the price in the future will drop. Buyers sense the market in the exact same way although they would want to buy low, sell high.
Futures market is kinda complex, and utilities face the same decisions as other players, including the consumer who does have an option to play the spot and futures market himself by deciding to purchase a contract for future delivery, or pay the price on the day of delivery. As it goes without saying that everyone has the option to agree upon or refuse the price offered or asked.

Someone has gone to the trouble in making a natural gas site, which may give some insight.
http://naturalgas.org/naturalgas/marketing/

 

[mheslep]

Part of the price increase may stem from a failure to build new domestic generation.

From 2002 to 2012, EIA reports that NY state has built some ~7 GWe nameplate of new dispatchable generation (i.e. not counting wind or solar), sourced almost entirely by natural gas. During a similar period, NY also closed three or four GWe of coal generation. By contrast, over the same 10 year period Texas, with a nearly identical population, built ~29 GWe dispatchable, with 2 or 3 GWe coal (again not counting wind or solar).

http://www.eia.gov/electricity/data/eia860/

Also, it appears neither NY nor any of New England has any plans to build and new dispatchable power.

 

[edward]

In NY, the electrical industry was 'deregulated' in order to increase competition, which would of course decrease prices.

Well - there was no increase in competition, and there was no decrease in price/cost.

Instead, the utilities shed generation and bought off the grid. Well, that reduced reliability, and increased price instability, but off course, the consumer has to pay more. The cost of poor planning is simply passed on to the consumer.

Utility bills have also increased along with mergers and acquisitions.

Mergers and acquisitions in the U.S. electric utilities industry will maintain a steady pace over the next few years. Recent deals have typically been credit neutral because they have been financed with a balanced mix of debt and equity, but how future transactions are structured and executed could change this, according to Moody's Investors Service.

Larger utilities like MidAmerican Energy Holdings Co. (Rated by Moody's as Baa1 stable), Duke Energy Corp. (Baa1 stable) and Exelon Corp. (Baa2 stable) are more likely to meet their expansion and diversification goals through acquisitions, while smaller utilities adopt an “eat or be eaten” strategy

http://www.elp.com/articles/2013/10/utility-companies-to-continue-mergers-and-acquisitions.html Locally Tucson Electric power raised rates in 2013 just before merging with UNS Energy Corporation.

UNS Energy's primary subsidiary, Tucson Electric Power Company (TEP), reported net income of $39 million in the second quarter of 2014 compared with net income of $31 million in the same period last year. For the six months ended June 30, 2014, TEP's net income was $48 million compared with net income of $32 million in the same period last year. The improvement in both periods is primarily due to TEP's new rate structure that was effective on July 1, 2013

As previously reported, in March 2014 UNS Energy's shareholders approved a definitive merger agreement with Fortis Inc. (Fortis), Canada's largest investor-owned gas and electric distribution utility. The merger has also been approved by the Federal Energy Regulatory Commission, the Federal Trade Commission and the Department of Treasury's Committee on Foreign Investment in the United States.

http://ir.uns.com/releasedetail.cfm?ReleaseID=862599