Oil markets to remain tight through 2008

ENERGY MARKET REPORT

According to the U.S. Department of Energy, world oil demand is expected to continue to grow faster than oil supply in 2008, putting pressure on OPEC and inventories to offset the upward trend in prices. The West Texas Intermediate crude oil spot price approached $100 per barrel twice over the last 6 weeks, and both motor gasoline and diesel prices are projected to average over $3 per gallon in 2008 and 2009. Despite these higher oil prices, world oil consumption is expected to rise by 1.6 million bbl/d in both 2008 and 2009, compared with the estimated 1 million bbl/d increase recorded last year.

On the natural gas front, consumption is estimated to have increased by 6 percent in 2007, driven largely by increases in the residential, commercial, and electric power sectors that occurred earlier in the year. However, due to a forecast of near-normal weather in 2008 and 2009, the annual increase in total consumption is expected to come down to 0.6 and 1 percent, respectively. In 2008, total marketed production is expected to increase by 1.6 percent primarily because of the start-up of new deepwater Gulf of Mexico supply infrastructure, which is expected to increase Gulf production by 7.9 percent for the year. The Henry Hub spot price averaged $7.32 per mcf in December and is projected slightly over $8 per mcf in both January and February. On an annual basis, Henry Hub spot prices are expected to average $7.78 per mcf in 2008 and $7.92 per mcf in 2009.

In the U.S., total domestic petroleum consumption averaged an estimated 20.7 million bbl/d in 2007. Total domestic crude oil output is estimated to have averaged 5.1 million bbl/d in 2007.

In electricity, growth in residential, commercial and industrial electricity sales is expected to slow from 3.0 percent in 2007 to 0.7 percent in 2008, due to lower projected summer temperatures. U.S. residential electricity prices are expected to grow by 2 percent in 2008 to an average of 10.8 cents per kilowatt-hour.

EnerNOC encourages all organizations to assess their current and future exposure to energy markets to determine if now is an intelligent time to extend contracts or develop forward looking strategies. Regardless of one’s view on whether energy prices will rise or fall, organizations should assess their current position to determine if there is an opportunity to save money and/or mitigate risk.

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Rates likely to remain high because of increasing natural gas prices, carbon emission restrictions, and economic growth.

UTILITIES SAY CONNECTICUT PRICES TO REMAIN HIGH AND UNSTABLE

According to the Integrated Resource Plan prepared by Connecticut Light and Power and United Illuminating, Connecticut’s electricity prices are likely to remain “high and possibly unstable”, despite sufficient supply and plans for increased demand-side resources, improved utility supply contracting, and better management of renewable energy certificates to help ease rate pressure. Rates are likely to remain high because of increasing natural gas prices, upcoming carbon emission restrictions and economic growth.

A lack of renewable energy will also force utilities to pay a state penalty charge of $55/MWh, because they will be unable to capture enough renewable energy certificates to meet state requirements. Costs could be eased, however, if the state’s demand-side management activities are increased.

In the report, the utilities recommended that certain restrictions under the current restructuring rules be eased, and that they be permitted to sign long-term contracts for supply, own generation, or procure energy, capacity and reserve products directly from generators. In particular, the utilities recommended they be allowed to own or enter into contracts with non-gas-fired power generation units. On the positive side, the report found the state no longer faces a capacity shortage if projects now in planning go forward.

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Report emphasizes the value of demand-side management activities in bringing costs down.

10% ELECTRICITY CUT POSSIBLE IN VIRGINIA, ACCORDING TO REGULATORS

The staff of the Virginia State Corporation Commission (SCC) has submitted a report to the State General Assembly and the State Governor, outlining Virginia’s goal of reducing per-capita electricity use by 2022 by 10%. In the report, the SCC indicates that it will implement only ‘cost-effective’ conservation measures, regardless of whether those measures translate into a reduction in consumption of 8%, 10%, or 12%.

Dominion Virginia Power filed an application with the SCC for permission to implement nine pilot programs related to energy efficiency/conservation and demand response/load management. Environmental groups are expected to push Virginia and its utilities to strive for more reductions in per-capita electricity consumption, contributing to the downward pressure on electricity costs.

In the SCC report, five sub-groups, established to examine the energy efficiency issue, have determined that the implementation of energy efficiency and conservation efforts would create benefits for Virginia ratepayers, and that “effective programs could help accelerate Virginia’s environmental and air quality goals while helping to reduce the costs associated with future climate change policies”. The sub-groups also concluded that administration and implementation of energy efficiency and demand-side management programs could rely on “either or both” utility and non-utility entities. Four of the five sub-groups also acknowledged that “while the [re-regulation] legislation focuses on a reduced energy consumption goal, reducing peak demand is also an important consideration”.

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Savings could reach up to $477 over 15 years, from customer price response and operational efficiencies.

SMART METER SAVINGS IN MARYLAND

According to new filings with the Maryland Public Service Commission, the state could save up to $477 million in power and operational costs by installing an automated metering infrastructure, or AMI. The filings, submitted by Pepco Holdings Inc. and Delmarva Power, state that the savings would primarily accrue from improved customer service, better capture of billing errors and notification of outages, and improvements in demand-side management strategies.

According to the filings, the metering infrastructure will allow customers to respond to market price signals, and is therefore expected to reduce customer demand, which in turn will lessen Pepco’s need to acquire capacity, energy and ancillary services. If customer participation in the price programs becomes mandatory, the savings could reach up to $314 million over fifteen years for Pepco and $52 million for Delmarva. In addition, the companies expect operational savings from improved billing and reduced meter reading on the order of $74.5 million for Pepco and $36.5 million for Delmarva. In total, these savings amount to $477 million over 15 years, compared to a combined installation cost $176.3 million. If other utilities in the regions also participate in AMI, the savings could rise even further.

The filings also emphasize other benefits of the advanced meter infrastructure and reduced demand. These include environmental benefits, a reduced need for new power lines, and improved reliability.

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RECENT MARKET TRENDS

Illinois Competitive Historical Rates

New England Competitive Historical Rates

Maryland Competitive Historical Rates

New York Zone J Competitive Historical Rates

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