FERC/DOE

In a move that isn't unprecedented, but indeed rare, the DOE filed a proposed rule at FERC yesterday. This might not get a lot of mainstream headlines, but some in the world of electricity are calling this a major development. Basically, DOE is asking that FERC look into rules that would cut down the time it takes data centers and manufacturing to connect to the grid. Also, there is language regarding co-location, or building generation with load. In the letter, Energy Secretary Wright states, "To usher in a new era of American prosperity, we must ensure all Americans and domestic industries have access to affordable, reliable, and secure electricity. To do this, large loads, including AI data centers, served by public utilities must be able to connect to the transmission system in a timely, orderly, and non-discriminatory manner.".

It's fair to say there is going to be some debate over this in the coming days. Half the debate will be the merit of the letter, while the other half will be back and forth over jurisdiction. It's also safe to say, this letter is driving some impromptu Friday morning meetings at ISOs and state Public Utility Commissions, not to mention utilities and transmission owners. Since our first language isn't lawyer speak, we will sit back and wait for the English interpretations that are sure to come. If we do have some lawyers in the crowd, here's the letter and feel free to DM the seventh grade version.

FUTURES MARKET

The electricity world is filled with cool conferences in even cooler places where you can network, catch on new innovations, update on reforms, check out new risk management tools, or just choose your favorite catch phrase....it'll be included in the show. This week is a conference called the Nodal Trader Conference at the very fancy Ritz in Washington DC. The agenda is filled with a who's who crowd, from software CEOs to ISO CEOs, and while we aren't attending (shorts, flops, and beer tee shirts are frowned upon in the Ritz lobby) we are always interested in some of the topics. Presenting first thing this morning is Travis Kavulla, Vice President of Regulatory Affairs at NRG Energy. We aren't 100% sure what his topic will be, but we stumbled onto a fascinating question/poll he was asking on X yesterday where we assume he will include results this morning . In a nutshell, and forgive us Travis, he basically asked 'in a free market, if we were so concerned about AI demand growth, wouldn't it show up in the longer term forward curves trading higher?'. In other words, given all the warnings we've read and relayed on these pages, if load growth is booming with AI, isn't it fair to assume that the longer term curve, representing future electric purchase price, be higher given supply and demand? Great question.

First we had to turn to the curve and confirm it is pretty flat. Using our AI research assistant, ChatGPT, we came up with this curve for a trading zone we participate in fairly often (Indiana Hub within MISO). As an aside, our research assistant wants us to know that 'it can make mistakes. Check important info.'. Anyway, disclaimer or warning aside, this looks like a reasonable representation of market maker's quotes. While there is certainly an upward trend, it would certainly not be the picture of contango in anyone's commodities text book. So, we say again, great question.

In the poll Travis was conducting, the options for why the curve is flat were....government policies, lack of long term buyers, and no one believes the AI boom is real.

Since we took the time to ponder this question, we figured we'd answer the poll. While policies and overexaggerated boom are plausible, we went with no buyers. While we have no real evidence for our answer, we have a theory, or at least a hunch. Given the volatility in energy and capacity markets, locking up long term contracts maybe just as risky as waiting. That volatility in the market works both was for buyers and sellers so it's possible there may not be real liquidity five years out. In other words, try to buy 5 MWs at $54 in 2030 no problem, try to buy $500 MWs in 2030, good luck as the market is now $60.

Admittedly, our theory is no better than anyone else's, but we will give it more thought. Really it's a fascinating question and we're glad it was brought to our attention. So impressed, we might actually put on a pair of dress pants, collared shirt, and blazer next year to find the next great question. Again, thanks Travis for pointing this out.

NATURAL GAS

Natural gas continued it's volatility this week as the November contract closed down roughly 4%. EIA storage data showed an injection of 87 Bcf which was at the high-end of expectations spanning from 72-87. It appears the on again off again start of winter is indeed, off again as forecasts for warmer short term temps.

In the past 24 hours, there have been two deals that include additional sanctions on Russia that include oil and natural gas. The EU "welcomes the adoption by EU Member States of the 19th package of sanctions against Russia". This includes a total ban on LNG and a further clamp-down on the shadow fleet delivering Russian oil and gas. Headlines of this announcement should be bullish for natural gas as Europe scrambles to find replacement gas!!, but once everyone hits the buy buy buy button and then reads the fine print, there may be some buyer's remorse as it reveals this ban will be carried out in two phases which are six and sixteen months as contracts roll off. Not an immediate ban, so not an immediate rally.

In the world of oil, the US announced new sanctions on the oil sector in Russia. The announcement drove oil prices up 5% higher with concern that Russian oil supply may come off the world market. We don't typically comment on oil other than they tend to trade inversely as speculators are one commodity against the other. Also, higher oil means more drilling for both oil and gas.