The Perfect Storm: Energy
Energy Workforce | FOR JOB OPPORTUNITIES, VISIT www.PennEnergyJOBS.com | Winter 2014 3
Retail’s Winter of Discontent
By Michael Hinton
ON January 31st, Maryland-based Clean Currents shut its doors for good.
The renewable energy supplier sent
a minor shockwave through the industry by abruptly announcing it could no
longer serve its 8,000 residential and
business customers. Speaking to journalists about the closure, the company
president said ‘the financials were fine.
None of us suspected that we would be
out of business in a week.’
Clean Currents was a casualty of
wholesale price volatility during the Po-
lar Vortex cold snap, which sent tempera-
tures plummeting overnight in early Jan-
uary and massively disrupted life on the
East Coast and Mid-Western states.
Essential infrastructure simply seized
up: flights were cancelled, trains stalled,
schools were closed and white-outs were
common on icy, snow covered highways.
For energy retailers, it was the ultimate
black swan. Already dealing with cold-
er-than-normal fall and winter tempera-
tures, they quickly found themselves in
a vice-grip of spiking demand, dimin-
ished supply and a rapidly degrading op-
PJM Interconnection, the largest US
grid operator, hit a record winter peak use
of 141,500 megawatts – just as 20 percent
of its generators went offline due to the
Coal-fired power plants accounted
for roughly half the outages, while die-
sel generators made up the other half.
There were instances of coal stacks be-
ing frozen solid and many diesel genera-
tors just wouldn’t work in extreme cold.
Pipeline constraints also caused generation problems by driving up natural gas prices east of the Rockies. As the
most popular American heating fuel, utilities relying on gas for generation had to
compete with standard natural gas needs
when the vortex landed.
The wholesale energy market re-
• PJM’s average on-peak power price
jumped from $50 to $278
• Henry Hub spot prices spiked from
$3.95 to $8.15 MMBtu
• Propane jumped from $2.08 to $4.20 gal.
• North Sea Brent Crude spot price aver-
aged $110 bbl for 8 consecutive months
Out in the cold
On the surface, surging demand for electricity should have meant increased revenues and profits for all. But peak power
isn’t always preferred. For electricity retailers with customers on fixed-rate contracts, demand and price volatility bring
risks that can obliterate margins.
Overextended electricity systems
can spell disaster. At the depths of
deep freeze, our customer South Carolina utility SCE&G was forced to implement rolling 15-minute blackouts
to manage demand. Many others were
openly calling on customers to turn
down thermostats or even leave the curtains on South-facing windows open so
sunlight could heat their homes. Most
grid operators in the affected states
were compelled to draw on expensive
demand response resources from other
suppliers, putting further upward pressure on wholesale pricing.
Inadequate hedging against such extreme variability in wholesale pricing left
many retailers financially exposed and
scrambling to pay their bills. When it announced its closure, Clean Currents said
spot market prices during the Polar Vortex went up not by 20 or even 50 percent
– some jumped by 500 percent. When
MICHAEL HINTON is Chief Customer
Officer and Senior Vice President, Products
and Solutions for Allegro Development