Utilization-Road Rage

Have you ever gotten fired up for the weekend, hit the on ramp of the nearest freeway and come to a dead stop stand still as everyone else decided to be just as “fired up” for the weekend and hit the road at the same time? As you finally merge in, and move along bumper to bumper at feet per hour your mind ponders, on one hand two more lanes would be great to help the situation, while countering you remember taking this same route after the game the other night and there were five cars on the road as you sped along, at posted speed of course.

This week the folks over at Grid Brief made us aware of a paper presented by The Brattle Group- The Untapped Grid: How Better Utilization of the Power System Can Improve Energy Affordability. In the paper, they discuss the utilization of the grid and how, better planning could help utilities create more revenue, rate payers pay less, and greater access to new customers….at true win/win/win! We’ve included some snips from the paper, but recommend the read…it’s easy and well thought out.

So what is utilization? Like many topics in the electricity world, that question could be a week long conference, but we will try to hammer it out in a few paragraphs. The electric grid is made of generation, load, and transmission. Generation and transmission need to be built to accommodate the highest load at any time. If, for this discussion, we think about the grid as the transmission system, that means we have to have enough wires to carry the maximum amount of electricity that could be called upon. Utilization, in simplest terms is, how much of that capacity normally used…in other words, how much of the time is the freeway jam packed? Every utility or transmission owner looks at utilization, or capacity factor, religiously as it shows how much of it’s system is being used to generate revenue. Obviously the higher the number the more the system is being used and utilities are happy.

As the world talks about data centers and the need for more spending on new equipment to handle the increased load, a worthwhile and needed discussion, what if we just used what we had more efficiently? This is the discussion in the Brattle paper. Turing back to our road rage inducing scenario, think of the freeway as the transmission system. The Friday afternoon heading for a long weekend on the highway, is a scorching hot July evening. Just like the road needs to be built for the heavy traffic, so does the grid to handle the heavy demand. Now picture the 11pm game over road with no one on it like a 3 am cool night on the grid….in each case much less traffic and lanes not being used. Staying with the analogy, the discussion of more grid assets is akin to the argument we need more lanes which is appropriate for peak demand, but is just more unused lanes to speed down over night. Just like in the road scenario, someone has to pay for it. New road, new taxes. New grid, new demand charges.

What if we could take some of that demand on Friday afternoon heading to the cabin, and move it to overnight? There wouldn’t be the need for more roads (they still need to be maintained) as more empty freeway is filled during off times….increased utilization. In the utility world, doing this could open some space on the grid for peak times thus allowing new customers and more revenue/profit. New customers means lower rates for everyone as some of the maintenance costs of the grid are shared. Higher profits, new customers, lower overall rates….win/win/win. A real utopia!!

Trying to spread load isn’t a new concept, but in the conversation of data centers, it might be more relevant. In the world of maintaining roads and grid demand, asking the folks that work downtown in those big buildings to make a 10pm-6am shift to lessen the traffic might not work, but a data center doesn’t really have a social life (yet….we know, we know agents talking to agents) or need sleep so it can do more work overnight. Any flexible load can be a new load, making money for the utility, and bringing down rates for all rate payers.

Natural Gas Market Commentary

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Benchmark natural gas futures are on track for a third straight week of very modest losses, with prices continuing to bounce around in a relatively tight range. Today marks the expiration of the April 2026 contract, which appears on Friday morning to be heading toward a final settlement just above $3.00 per MMBtu. With May rolling to the front of the curve on Monday at a slight discount, summer natural gas is off and running, and the U.S. market remains mostly unconcerned with the ongoing volatility on the global stage.

As discussed previously in this space, the lack of surplus liquefaction capacity helps limit domestic exposure to global supply fears. Instead, NYMEX natural gas traders are more focused on domestic fundamentals. To that end, conditions look fairly bearish, at least in the near term. The market weathered a brief period of cold last week, which showed up in yesterday’s EIA report. The net draw of 54 Bcf brought inventories down to a likely seasonal bottom of 1,829 Bcf. For all intents and purposes, this is right in line with historical benchmarks and sets up a relatively smooth path to rebuild stocks to healthy levels over the summer. Meanwhile, the near-term weather outlook is conducive to strong early-season injections. Temperatures are expected to run warmer than normal across most of the U.S., and despite some early cooling load in certain markets, weather-related demand should remain limited—as you hope for during the shoulder season.

The big question marks for the upcoming summer revolve around the timing of new LNG export capacity from Golden Pass, the pace of production growth, and, of course, power generation demand. Last summer saw a rare year-over-year decline in natural gas demand from the generation sector. This summer should help determine whether that was a one-off anomaly or the start of a broader trend. With lower prices expected, our base case leans toward a return to demand growth, though other variables (chiefly summer weather) will ultimately shape the outcome.

Cocktail Corner

Cocktail Corner is usually dedicated to a subject that can loosely be connected to the world of electricity or energy…maybe an occasional financial thought. This week, given where we are on the calendar (April right around the corner) and the opening of the baseball season, we are dedicating the Corner to one of the, in our opinion, greatest works of literary art in our lifetime by George Plimpton.

We will give no details of the article except the date written and the context. This appeared in Sports Illustrated on April 1, 1985. This is when SI and The Sporting News were the only options for high school sports fanatics…speaking from experience. While reading this, remember there was no internet, there was no texting, there was nothing except the world of the sports gospel. Enjoy.

We present….The Curious Case of Sidd Finch.