Utility Prices

[moda0306]

After seeing how much Natural Gas prices have fallen in the past 4 years, I got curious and looked at my energy bill (Xcel Energy).  There was no difference in cost/therm in the current year than last year.  I was mighty surprised, as gas prices fell by 50%!!

I talked to a rep at Xcel and she told me that they use a computation that they have to submit to the MN Public Utilities Commission.  That price/therm was raised in 2009 (not sure how much), and stayed the same through 2010 & 2011.  It was then raised again for 2012!!!

All this time, natural gas has been plummeting in price.

They claim they don't/can't take profits on price fluctuations, but the money has to be going somewhere!

Does anyone know WTF is going on here?

[MediumTex]

Does anyone know WTF is going on here?

It's possible that some idiot at the company used hedges to lock in a long term natural gas purchase price of $10 because everyone was sure they were going to go to $15.

[moda0306]

MT,

Yes, that's possible... I wonder if the have an exponential "risk management" policy where the higher the price goes, the longer into the future they buy contracts so to prevent mom & pop from paying another dime in utilities.

... or something similar.

It just kills me that I'm not taking advantage of these prices... I was really encouraged by yesterday's news... now I'm just pissed and dreaming up conspiracy theories.

[MachineGhost]

It could be going to all the green energy requirement boondoggles.  Utililty price increases have outpaced inflation for a long time due to this.

MG

Does anyone know WTF is going on here?

[TripleB]

Clearly there's no shenanigans going on here, because in a free market, if one utility tried to pocket the huge profit from their 50% drop in cost of goods sold, then another utility would drop rates.

Oh no wait, it's a government monopoly.

What's going on here? They have a monopoly and it doesn't matter what natural gas prices are because they can raise rates and there's nothing you can do about it.

[moda0306]

TripleB, 

I am as pissed as anyone but can you explain to me how multiple gas/electric companies would work?

[Lone Wolf]

I am as pissed as anyone but can you explain to me how multiple gas/electric companies would work?

I'm not TripleB but I hope you don't mind if I interject.

In Texas, the way this was addressed was to have a single electricity infrastructure provider and many different electricity producers.  This means that one company has an effective monopoly on the power lines but there are a lot of companies producing the juice (or repurchasing it from other companies.)

These electricity producers compete on a combination of price and the means by which they produce electricity.  For example, if you are a big fan of wind power, Green Mountain Energy will produce all the power that you buy with windmills.  Nice and clean.  You pay a little bit of a premium for using them, of course.

The Texas Electric Choice website provides a list of the companies that service your area, their electricity production methods, customer service ratings, and the price \ contract terms of each.  This is the FAQ in case you're interested in how some of the pieces fit together: http://www.powertochoose.org/_content/_ ... s/faqs.asp

[MediumTex]

If you look at the forward curve for natural gas it is in contango, while the forward curve for oil is in backwardation.

In other words, futures prices for natural gas as MUCH higher than current spot prices, while futures prices for oil are somewhat below today's spot prices.

This means, in part, that few natural gas consumers may actually be benefiting a lot from the current low spot prices.

In theory, the price of oil and natural gas should track one another on a BTU basis, which suggests that the price of oil should either be a LOT lower or the price of natural gas should be a LOT higher.

[MachineGhost]

Don't try and arbitrage it.  The contango will eat you alive.  I should know. 

MG

In theory, the price of oil and natural gas should track one another on a BTU basis, which suggests that the price of oil should either be a LOT lower or the price of natural gas should be a LOT higher.

[MediumTex]

Don't try and arbitrage it.  The contango will eat you alive.  I should know. 

MG

In theory, the price of oil and natural gas should track one another on a BTU basis, which suggests that the price of oil should either be a LOT lower or the price of natural gas should be a LOT higher.

Oh no, I wasn't suggesting it could be arbitraged.

It could take 10-20 years for the BTU gap to close.

[moda0306]

Thanks, LW.

I figured it was something like that... shared transmission with competitive companies.

Ours is the worst of both worlds... private-sector profiteering + Government-sector monopoly!!

[KevinW]

I am as pissed as anyone but can you explain to me how multiple gas/electric companies would work?

Competitor gas or electricity companies could build a parallel distribution network if there were enough demand to support it.  That already happened with data; the telephone monopoly wasn't responsive enough to consumer demands and cable companies put in a second, parallel, wire network at great expense.  Most homes are now serviced by at least four independent data networks (telephone, cable, cell phone, satellite).  Those companies aren't exactly angels, but there is more competition and choice in the home data market than in gas and electricity.

[moda0306]

I wonder if I could put a big gas tank in my "cave" (storage room under my garage), and play the cost of natural gas against the "heads I win, tails you lose" price-gouging of the utility company.

[KevinW]

Well you can buy propane tanks.  There are home appliances built to run off those; they're intended for off-the-grid applications like cabins and boats.

[moda0306]

Not natural gas, though?

[KevinW]

There are compressors and tanks intended to be used at refueling stations for compressed natural gas (CNG) vehicles such as municipal buses and and the Honda Civic GX.  I have no idea if they are appropriate or legal for residential use.

[MediumTex]

Not natural gas, though?

If anyone is intereted...

Propane vs. Natural Gas: What’s the Difference?

The flames look the same, but the fuels are different.

Let’s start with what you probably already know: natural gas is a fossil fuel in a gaseous state that travels through pipes to people’s homes for use as a fuel for cooking, heating and water heating. Many people believe that propane is the same gas stored in tanks of various sizes instead of delivered by pipe, but that is not the case. Propane is in fact a different fuel from natural gas, though the two are closely related. So what’s the difference between these two fossil fuel cousins?

Chemical Makeup

Natural gas that is drilled out of the ground is actually a mishmash of several gases. Methane is the biggest component of unrefined natural gas, and is the one gas left at the end of the refining process. So when someone uses natural gas for cooking or heating in their home, they are essentially burning methane with an odorant (added for safety, it makes gas leaks more easily detectable) and a few other additives. Other components of unrefined natural gas include butane, ethane, and propane. That’s right, propane is actually a part of unrefined natural gas that is separated out during the refining process sold separately. Both refined natural gas and propane are hydrocarbons (nature-formed compounds made up of hydrogen and carbon). Propane’s chemical formula is C3H8 and methane’s is CH4.

Physical States

Unrefined natural gas, as the name implies, exists underground in a gaseous state. It is extracted as a gas and refined as a gas, but can be stored as a gas or a liquid. By changing temperature and pressure, refined natural gas can be liquefied—into a substance called liquefied natural gas (LNG)—for storage. Similarly, propane is extracted from unrefined natural gas as a gas, but unlike refined natural gas (methane), it is almost always stored and transported in its liquid state, as a substance called liquefied propane gas (LPG). This is why propane is usually sold in gallons (a measure of liquid volume) and natural gas is sold in cubic feet (a measure of gas volume). LPG is stored in pressurized tanks, and the pressure inside the tanks keeps the propane in its liquid state. But as soon as the tank’s valve is opened and the LPG moves out of the tank, it escapes the pressure and vaporizes into gas state. This formerly-liquid-now-gas form of propane is what fuels stoves, heaters, and other residential appliances.

Energy Content

Which packs more power, natural gas or propane? The pretty clear answer is propane. The energy content of most fuels is measured in British Thermal Units (BTUs), so comparing the BTU content of identical quantities of different fuels gives an accurate comparison of energy content. Although propane is transported and stored as a liquid, we’ll refer to its gaseous state for the sake of a more direct comparison with natural gas. One cubic foot (ft3) of natural gas contains 1,030 BTUs and one cubic foot of propane gas contains 2,516 BTUs, giving propane about twice the energy content of natural gas. Propane101.com offers this comparison to put BTU values in the context of heating fuel:

   • 100,000 BTU/hr furnace will use about 97 cubic feet of natural gas (100,000 ÷ 1,030 = 97.1) in one hour
   • 100,000 BTU/hr furnace will use about 40 cubic feet of propane (100,000 ÷ 2516 = 39.7) in one hour

So there you have it. Propane, by nature a component of natural gas, is separated out during the refining process to become a more powerful fuel.