GREENCROWN Energy would like to keep you informed about IMPORTANT INFORMATION in the energy industry. We believe you will be interested in the following article published in the Wall Street Journal. This, along with other news, prove that power-price rise will continue to happen.
We strongly suggest that if you are not on a fixed electricity contract right now, you call us immediately to lock in a rate before the summer month spikes take effect. In the northeast, July and August can represent up to 70% of a company’s annual electricity consumption.
Power -Price Rise Energizes Utility Shares
By Timothy Puko
A rising outlook for electricity prices is giving utility stocks a jolt. Shares of power generators with plants in the Mid-Atlantic region and Midwest soared on Tuesday, the first day of trading after an announcement Friday by the regions’ grid operator power-price rise, by double.
PJM Interconnection LLC boosted the price it pays plants to operate in a bid to encourage power companies to generate more electricity for the 61 million people in its territory. PJM sets these “capacity prices” in an annual auction involving power generators, which concluded Friday. The grid covers an area ranging from New Jersey to North Carolina and as far west as Chicago.
At the auction, power producers such as Exelon Corp. EXC +0.17% and FirstEnergy Corp. FE 0.00% were among the bidders for long-term contracts to supply electricity. PJM guarantees payouts to generators based on how much power they can produce, even if demand doesn’t materialize.
FirstEnergy, which saw its stock rise 5.6%, was the biggest gainer in the S&P 500 index on Tuesday. NRG Energy Inc. NRG +0.46% shares rose 4.7% and Exelon’s stock increased 3.6%. All three companies operate plants within PJM’s grid. Trading was closed Monday for the Memorial Day holiday.
“We don’t see any losers of the auction,” analyst Angie Storozynski of Macquarie Capital Inc. MQG.AU -0.20% said.
Consumers will likely see higher utility bills as a result of the auction, which sets prices for the period running from June 2017 to May 2018. Capacity prices account for about 10% to 15% of electric bills, according to PJM.
The higher prices are a boon to power producers, as they lock in part of the producers’ revenue three years in advance.
Many utilities have struggled in recent years with low power prices, increased competition and the rising cost of environmental regulations. Some have closed plants when payments by grid operators haven’t been high enough, raising concerns that power needs could exceed supply during periods of high demand.
The auction “is a sign that prices can’t be as low as they’ve been indefinitely without jeopardizing our [grid’s] reliability,” said Jonathan Arnold, a utilities and power-sector analyst at Deutsche Bank Securities in New York.
PJM opted to buy less power from outside its home region in an effort to boost prices enough to keep local generators from shutting down plants.
The “capacity price” was set at $120 a day for every megawatt made available, according to results of the annual auction released by PJM on Friday.
That compares with about $60 per megawatt-day established for regions that include some Washington suburbs, Pittsburgh and Chicago at PJM’s auction last year. The part of New Jersey between New York City and Philadelphia will see a capacity price of $215, about the same as last year’s level.
To be sure, while the capacity-price increase helps, it doesn’t cure all of the power sector’s problems, utility companies said after the auction. The higher prices won’t guarantee that all FirstEnergy plants can stay profitable, said Don Moul, the company’s vice president of commodity operations.
Exelon filed a regulatory notice Tuesday that said three of its nuclear units didn’t win contracts with PJM at the auction, meaning they likely needed a higher price to operate than PJM would guarantee.
Bill Costello, energy analyst and portfolio manager at Westwood Holdings Group, which manages $19.1 billion, said that he doesn’t see the news as a landmark shift in the market.
“The euphoria seems a bit silly,” Mr. Costello said. “It definitely seems like positive news, but we’re talking about the 2017 and 2018 time frame.”
Utilities also were helped by a decision Friday by the District of Columbia Circuit Court of Appeals curtailing payments by grid operators to large power users that agree to conserve energy. Reduced payments would likely lead to increased power demand. FirstEnergy was a plaintiff in the case.
“We just think it was a very strong outcome from this ruling,” FirstEnergy’s Mr. Moul said. “Friday was kind of an action-packed day.”Article lifted from Wall St. Journal.