Kicking Off 2018 and Examining the Energy Playbook

Now that the universe is properly aligned, with the University of Georgia once again playing for the national college football title, PACE has great hopes for 2018. Should that sense of optimism extend to Washington, D.C. and progress for energy consumers? This early in the year, there are more questions than answers.  

First, of course, Congress and the Administration have to settle out how to pay the bills. A series of short-term spending Continuing Resolutions for FY2018 runs out soon, and until a solution is reached, there’s not enough oxygen to fully undertake other important discussions on tax extenders, infrastructure, an $81 billion disaster aid package, and energy legislation. As well, team rosters have changed up heading into the new season, with the Senate now standing at 51 Republicans – 49 Democrats.

Just as tax reform was crossing the finish line and being signed by the President, tax extenders legislation (S. 2256) was also introduced, carrying some important provisions, including the nuclear production tax credit that can help Plant Vogtle reach completion. The House hasn’t been quite as proactive, although Ways & Means Chairman Kevin Brady says he will work on the issue.

Infrastructure (recall this HUGE Trump campaign promise) legislation is once again being discussed, but until spending and budget get more clarity, it is difficult to know under which sofa cushions we might find $600 billion to $1 trillion to pay for a package that can do enough good to matter (and attract the needed votes). Rep. Bill Shuster, who chairs the House Transportation and Infrastructure Committee, has announced his retirement. Will this motivate him to champion a bipartisan legislative package as part of his legacy, or weaken his ability to cajole others in the diverse Republican caucus?

Several other items remain on the D.C. to-do list. In November, the International Trade Commission recommended that President Trump levy quotas and tariffs on foreign companies that have flooded the U.S. market with artificially inexpensive solar panels. His decision is due before the end of January.

On January 10, two days after Georgia triumphs over Alabama, energy policy watchers will finally learn what FERC plans to do with DOE’s “suggestions” about valuing energy resiliency. How will the deep freeze across many regions, that has caused natural gas spot prices to spike and increased reliance on coal and oil as generation fuels, affect the outcome and rhetoric next week?

The answers to these infrastructure and energy policy questions are elusive, but there are many good minds on both sides of the aisle thinking and working together to reach answers.

May the best team win on Monday, and may temperatures warm up for many of us soon.


The Best Resolutions are Made at Home

With champagne flutes and noisemakers safely stored away, many of us turn to making New Year’s resolutions. These vary widely, but usually have one thing in common – we select them and measure success or failure ourselves. Wise partners and friends know to give advice only if asked. In short, one size doesn’t fit all, and mandates backfire.

Over the holiday break, I was reminded that local officials should adopt this same approach when it comes to one of the most important transactions that a family encounters – buying or selling a home. Lots of ink has already been devoted to the fallacies of heavy-handed solar panel ordinances in South Miami and San Francisco adopted last year, but there’s now a new one to watch in Portland, Oregon.

Portland’s new ordinance went into effect January 1, 2018 and requires single-family home sellers to obtain a “Home Energy Report” ahead of listing a home. The heart of the Report is a Home Energy Score. According to the city, the “Home Energy Score is a measurement of the energy efficiency of a home based on an onsite evaluation of the physical characteristics of the house. [It] … is not a measurement of the household’s actual energy usage, which is influenced by occupant behavior.” Failing to post the Score online and on premises can lead to a $500 fine. The assessment itself is projected to cost $150 to $250.

This ordinance must have sounded appealing to the City Council. More information for buyers is good, right? Both parties can use the handy two-page report. Who wouldn’t want to know the carbon footprint of their home? And “think of the good-paying jobs right here in our city” for the inspectors.

Energy efficiency should be encouraged; there are many common-sense, low-cost measures people can take. Still, when faced with a one-size-fits-all approach that adds process and cost for consumers, policymakers should always ask tough questions to ensure that hard and fast rules really pencil out and provide more benefit than cost.

Based on the sample report, this new process doesn’t provide substantially more information than a home inspection. Basing the score only on the home’s characteristics and ignoring occupant behavior leaves out what many homebuyers may really want to know – when a real person lived here, what did it cost to heat and cool this property? And, it seems likely to divert funds that parties might actually use to improve their homes’ efficiency. Low-income consumers – sometimes the least able to navigate processes – have to apply for assistance.

On top of it all, the new ordinance ignores the fact that if you are buying or selling a home, you are already incredibly busy, juggling lots of to-do lists and may be facing other life pressures. If we want people to think warmly of energy efficiency, this new requirement may have the opposite effect. Portland and other cities would do well to let homeowners make their own efficiency resolutions at home.


Winter’s Arrival Highlights Value of Natural Gas Hedging

Today’s guest blog is by Andy Whitesitt, Vice President, ACES Power. ACES Power is a national energy management company which helps its members and customers buy, sell and manage energy more efficiently and with less risk. 

For the past 15 years, I’ve been responsible for procuring fuel for power generation across the U.S. Therefore, I’ve learned firsthand what volatility in natural gas prices does to power prices and ultimately the rate that end-users pay for their electricity. Natural gas hedging provides a tool to help reduce some of this volatility.

Based on my experience with hedging natural gas for power generation, one thing stands out – natural gas prices can be volatile. While luckily, natural gas markets and utilities in the Southeast haven’t encountered volatility recently, other areas of the country have experienced natural gas price volatility around weather events and pipeline constraints. Watch the Weather Channel and the markets this winter to see the correlations.

As the U.S. retires coal generation, the demand for natural gas for power generation has increased and will continue to do so for decades to come, especially as electric vehicles and other electrified technologies come to market. In addition, the U.S. will see more demand from natural gas from LNG exports, exports to Mexico and greater industrial demand. As a result, the U.S. will need to produce more natural gas. While it seems that we have adequate supply to meet all these needs, any disruption to supply – regardless of how brief – can create price volatility and cascading effects on electric rates and bills.

Over the years, I’ve followed many analysts who forecast natural gas prices. Right now, there is strong agreement that natural gas prices on average will remain near $3-$4/MMbtu for many years. However, over time, forecasting natural gas prices has been challenging and many of the best analysts have been wrong. Natural gas hedging allows power producers to reduce uncertainty in price forecasts, provide greater certainty around fuel costs and ultimately less volatility in end-user electricity prices.

Additional, if we look back over time, natural gas imports and exports were conducted in a limited and somewhat predictable fashion – the US sourced any imports from Canada and exported only minimal amounts of natural gas to Mexico. All that’s about to change, based on policy and market trends. We’ve begun to export natural gas as LNG around the globe, and could potentially export as much as 8-10 Bcf/day across the globe – or about 10-15 percent of today’s total U.S. production.

This points to the strong potential for global events to increasingly impact domestic natural gas prices. Most global LNG pricing is tied to crude oil and has been very volatile during geopolitical events. Events that historically have not impacted US natural gas prices may now have the potential to do so. With this additional uncertainty and change in the way the U.S. gas markets have operated, hedging natural gas may become even more important to anticipate and compensate for events out of the control of utilities and regulators.