With gas prices moving up to highs near $10/MMBtu in the Northeast last week in response to the first real blast of winter weather, Philadelphia-based PECO Energy announced several significant improvements in its distribution infrastructure and some adjustments in its supply and gas transportation portfolio this winter. Eric Helt, manager of gas acquisition and planning, said the adjustments are designed to help it guard against price volatility.
However, there’s not much that can be done about the pre-Thanksgiving day Energy Information Administration (EIA) storage error caused by an incorrect data submission by Dominion Transmission, which sent the market soaring to artificial heights (see related story). Helt said the 32 Bcf storage mistake and corresponding market shock wave will cost PECO’s southeastern Pennsylvania ratepayers about $8 million. KeySpan, another large Northeast gas utility, also confirmed last week that the storage error will cost its customers about $7 million.
When the EIA reported an erroneous 49 Bcf working gas storage withdrawal on Wednesday, Nov. 24, it sent the December futures contract up $1.18/MMBtu on the day of expiration because the number did not even come close to what the market was expecting based on heating degree days for the week. A week later EIA admitted an error and revised the withdrawal to only 17 Bcf, and gas prices subsequently came tumbling back down to where they had been prior to the mistake.
However, for companies like PECO it was too late; the prices for monthly contracts were already locked in. “A good portion of our gas is tied to that index,” Helt said in an interview with NGI. “That will raise our gas cost somewhat, and it will have to be explained [to regulators] in our [purchased gas cost adjustment] filing in March…”
Helt said PECO purchased about 600,000-700,000 Dth of gas at a Nymex-related price for December delivery. It also made other purchases that were influenced by the artificial price price run-up.
If the utility can avoid other events like that this winter, Helt said PECO feels pretty confident that its supply and transportation portfolio will hold up well.
“We’ve done some things, given the volatility of the prices over the last couple of months getting up to the winter, to get off of just straight indexed price,” he said. “We have some index with discounts because we set them up as puts [or options to sell]. We took some off of the first of the month index, which right now looks like a good idea.”
Helt also said PECO will go into this winter with some additional long-haul capacity on Texas Eastern Gas Transmission that will help it reduce its basis exposure. PECO also holds long-haul space on Transcontinental Gas Pipe Line. “Because of the extra pipeline capacity we can actually buy production-area gas instead of a delivered service at the gate to make up our winter peak day. That helps because you’re not subject to a basis blow out on a winter day or for the winter season.”
PECO is expecting about 2% growth compared to last winter because of new service connections — residential and small commercial customers. Its design day is up to about 766 MMcf/d and its average winter demand is about 375 MMcf/d.
Helt said the utility has a hedging program in place that has been approved by regulators. It requires the company to lock up winter supply starting about 18 months in advance.
PECO is “well prepared to meet peak demand” on the coldest days of winter, he said. The company anticipates delivering 47 Bcf of gas to core residential and small commercial customers this winter. Its portfolio includes about 20 Bcf of gas in storage and two local LNG and propane storage facilities that ensure it can meet demand on peak days.
PECO also has made about $5.75 million in distribution infrastructure improvements this winter. The new $1.75 million East Pikeland citygate station topped its list of winter readiness projects. PECO’s 30th citygate will help serve residential, business and institutional customers in Chester County and will improve reliability in other areas. The station has a capacity to provide an additional 30 MMcf/d of gas supply. About $4 million was spent on about 18 other local infrastructure projects in recent months to upgrade its distribution system mainly in suburban boroughs.
PECO’s customers will pay about 7.5% more for gas this winter compared to last winter ($1.18 per hundred cubic feet). “Our prices will be much lower than the national forecast,” said PECO spokesman Michael Wood. “I think the Department of Energy forecast that came out about a month ago showed that oil and gas nationwide would be about 28% higher for consumers than last [winter]. We’re looking at about 7.5% depending on weather.”
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