Power and Gas Prices: Time for Long Term Contracts?
To manage facilities effectively, you have to be up to date on a wide variety of areas, from HVAC to fire safety, and from green design to ADA. It's a daunting task: Each area is a separate domain of knowledge that has its own experts, whose only job is keeping up with developments in that field. Most facility managers don't have the luxury of focusing full time on any one area. But you still have to stay informed. By way of a heads up, here are eight things that will have an impact on the facility management agenda over the next 12 months.
Power Price Dilemma
In 2011, large power customers began locking in power and gas prices to avoid possible increases and volatility. The concern was that a pair of new EPA regulations, expected to take effect in December 2011 and January 2012, would push prices higher. While the former rule did take effect, the latter was suspended by a federal court. The question now is this: Should facility managers lock in current pricing or wait to see whether the rule is eventually blocked?
If the January 2012 rule (the Cross State Air Pollution Rule, or CSAPR) had taken effect, some coal-fired plants would have shut down temporarily over the next 3 years while being retrofitted with new pollution controls; others would have been closed permanently due to age and potential retrofit cost. The result would have been an increase in the use of gas-fired power plants, thus raising gas demand and price, and — to varying degrees — power prices.
According to industry sources, the Federal Court of Appeals may not actually issue a decision until the early summer, keeping CSAPR in limbo until then. If the court sends the rule back to EPA for retooling, CSAPR could be killed, depending on the outcome of the presidential election.
This uncertainty will likely yield short-term price volatility as suppliers try to anticipate how the court will rule, and higher long-term fixed pricing until a decision is clear.
Where customer choice exists, customers are faced with a quandary: take a floating price option and watch it fluctuate (yielding possible savings but inconsistent billing), lock in short-term pricing for a year to secure savings while CSAPR sits on ice, or (if long-term budget certainty is essential) bite the bullet and lock in multi-year pricing in the hope that they won't pay too much for price stability.
What should be kept in mind, however, is that power and gas prices are now at an all-time low. If one can lock in reasonable pricing for several years, doing so will ensure that no factor (including an economic recovery) will raise it. The prospect of missing out on even lower pricing pales compared to the impact if wholesale prices return to 2008 levels, when power was roughly double — and gas was more than triple — what is still being seen today.
Lindsay Audin, CEM, LEED AP, CEP, is president of EnergyWiz, an energy consulting firm based in Croton, N.Y. He is a contributing editor for Building Operating Management. He can be reached at email@example.com.