BPU Discusses Electric, Natural Gas Risk Management
The wholesale electricity market has stabilized somewhat, but remains a risk for the Jamestown Board of Public Utilities.
On Monday, David Gustafson, BPU electric and gas resource manager, discussed the BPU’s risk management program for the electricity and natural gas wholesale energy markets. Gustafson said the wholesale electricity market’s transmission cost to move power from Niagara to Jamestown has stabilized this year, but might spike again this summer.
Gustafson said due to the closure of the NRG power plant in Dunkirk and Huntley power plant in Tonawanda, the transmission congestion costs have spiked in recent years for the BPU. He said in 2015, the transmission congestion cost was $2,355,000 and it was $3,074,000 last year. There is good news so far this year because the transmission congestion cost year-to-date is only $331,000, Gustafson said.
“The costs has stabilized this year,” he said.
However, he said transmission congestion cost usually spikes during the summer. Gustafson said he anticipates that will be the case again this year. He said the costs of transmission congestion is reflected in the fuel adjustment charge. He added he tries to manage the transmission congestion costs so there are no large spikes.
Gustafson also discussed the Clean Energy Standard. He said it is the state’s initiative to be using 50 percent renewable energy sources by 2030. As part of the Clean Energy Standard that was approved by the state Public Service Commission in August 2016, state utilities are being charged zero-emission credits to support three nuclear power plants. Because the nuclear power plants don’t emit carbon dioxide, they’re seen as a bridge until more renewable energy sources can be used to generate electricity in the future.
The zero-emission credits are estimated to cost state ratepayers $7.6 billion between now and 2030. Gustafson said last month the charge for zero-emission credits impacted customer’s bills for the first time. He said the BPU is being charged $893,000 a year, or $74,000 a month, for the zero-emission credits. He added the additional cost was reflected in the fuel adjustment charge for BPU customers. He said customers will be paying an additional 10 percent in fuel adjustment costs and 3 percent more overall for the zero-emission credits.
“This is a new risk,” Gustafson said.
At the start of the year, BPU customers also had to start paying toward renewable energy credits to subsidize wind and solar power generation. Gustafson said there will be negligible costs requirements in 2017 for BPU customers for renewable energy credits. However, he said costs could go up quickly in future years.
Gustafson said BPU officials are trying to determine feasible options either by self-generating or entering a purchase power agreement for renewable energy credits. He said the BPU might be hiring a consultant to advise them on what the best plan might be for acquiring renewable energy credits.
As for the wholesale natural gas market, Gustafson said the short-term market is well balanced. He said there has been a natural shift from coal to natural gas in the last decade.
He added pipeline build-out is progressing and the export market is expanding rapidly. He said that right now the U.S. has a strong influence over the wholesale natural gas market. However, he said this should change over time to where the international market will have more of an influence, like how the crude oil market is today.
Gustafson said the BPU has agreements with five natural gas suppliers, with a majority of the gas being purchased on a day-to-day basis depending on plant operations. He said during the coldest days of the winter, the BPU will hedge 35 percent of the gas that is burnt. He added the price of spot gas was significantly higher this winter compared to past winters. Also, the BPU only burnt half of the gas they expected this past winter.
Because the cost was higher and they only used half of the gas they expected, Gustafson said the plan next winter is to hedge less than 35 percent of their natural gas. He said they also plan to pay a fixed reservation fee, which entitles the BPU to specific maximum amounts of firm gas at Dawn index price. He said this option is similar to purchasing insurance for the BPU’s natural gas supply.
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