How to manage your energy costs

Terry Crupi, Director of Natural Gas Marketing and Trading, PPL EnergyPlus

If your business hasn’t recently evaluated its contract with your natural gas and electricity suppliers, now is the time to do so.

With the introduction of Marcellus Shale, coupled with natural gas from other sources, prices have dropped significantly, making it the ideal time to partner with an energy supplier that can help you navigate the market, says Terry Crupi, director of Natural Gas Marketing and Trading at PPL EnergyPlus.

“Falling wholesale prices are proving a boon to businesses, and if you haven’t recently evaluated your contracts, you may be paying more than you need to,” says Crupi.

Smart Business spoke with Crupi about how partnering with an energy supplier can benefit your business.

What has been the impact of Marcellus Shale gas development on natural gas prices?

The introduction of Marcellus Shale, and natural gas from other sources, has contributed to a significant drop in natural gas prices to levels we haven’t seen in more than a decade. The increase in available natural gas supply, coupled with the economic recession, has caused prices to tumble by about $2.50 cents per million BTUs over the last 12 months.

These low prices have saved Pennsylvania businesses about $1.4 billion in natural gas costs, and created an opportunity for businesses to lock in their natural gas price and to evaluate switching to natural gas to power systems and processes.

The drop in natural gas prices has also affected wholesale electricity prices because power plants that run on natural gas often set the price for electricity in the competitive wholesale market. In the last 12 months wholesale market prices for electricity have decreased by about $1 billion in savings in electricity costs for Pennsylvania consumers.

As we see an increase in the development of Marcellus Shale, other benefits will become evident, such as the creation of jobs in existing businesses and enticing new businesses to the state. Marcellus Shale gas provides many long-term benefits to consumers and taxpayers beyond just the direct price impact for this important energy resource.

How do natural gas prices affect electricity prices?

Natural gas is a leading indicator for electricity prices, so as the increase in supply of natural gas decreases its price, the prices for electricity are driven downward as well. We are also seeing that, as natural gas becomes more available with the development of Marcellus Shale, power plants that run on natural gas are becoming more competitive on a cost basis with power plants that run on coal.

Historically, coal has been the lowest-cost source of electricity generated with fossil fuels. As the cost equation changes, and coal-fired power plants are faced with managing the uncertainty of new natural gas supply and new environmental regulations, natural gas will continue to gain prominence as a power generation fuel.

In addition, plentiful amounts of natural gas — or any commodity — generally result in lower prices, which provides lower costs (savings) and helps businesses and consumers meet or improve their bottom line. Low energy prices present opportunities for businesses to expand, increase production, or, at a minimum, switch fuels. In fact, many large industrial customers are now considering or converting to natural gas supply.

In some cases, co-generation with natural gas-fired generators may help reduce costs and improve reliability. These are options smart businesses will want to explore in the current energy situation.

What is the long-term view of natural gas prices? Will they stay low?

Our experience in the natural gas market and our analysis of the trends lead us to believe that low, more stable natural gas prices will be with us for a few years. It’s important to keep in mind, however, that natural gas prices are cyclical. At some point, due to increased demand or reduced supply, natural gas prices will trend upward once again. This is why it’s so important for smart businesses to evaluate their energy usage and monitor energy markets.

Many customers do this on their own while others receive assistance from an energy partner or supplier that has the knowledge and experience to understand when conditions are changing and can advise businesses on the best ways to manage their energy costs — or more important, advise them on an energy strategy.

How can businesses take advantage of the current low energy prices?

Partnering with an energy supplier that understands the nature of energy prices, external effects from government regulations and industry trends such as Marcellus Shale will help your business take advantage of current market conditions while assisting you in navigating the market in the future. Businesses now should be evaluating their current contract with their natural gas and electricity suppliers and asking how they can benefit from today’s low energy prices.

There are also ways to optimize a business’s energy usage to gain even more savings. The retail energy market provides other products and services that help you more efficiently and effectively procure and use energy.

The key is to proactively find an energy partner that you are confident will help you successfully navigate the energy landscape.

Terry Crupi is director of Natural Gas Marketing and Trading for PPL EnergyPlus, a competitive gas supplier serving industrial and commercial customers in Pennsylvania, New Jersey, Maryland and Delaware. Reach him for wholesale and retail inquiries at                   [email protected] or (610) 774-2310.

Insights Energy is brought to you by PPL EnergyPlus