I am pleased to forward 5’s third quarterly overview of the energy market. As with prior letters, this note covers some notable trends and developments in the energy market over the past quarter.

Last quarter, we commented on how fracking and the resulting explosion in natural gas production, particularly in the Northeast, is turning the energy industry upside down. There is a second important trend occurring in the US energy market, again driven by improvements in fracking technology. In 2013, the US is on track to become a net oil exporter for the first time since 1995. The reason for this dramatic reversal in our nation’s dependence on foreign oil is the increase in domestic oil production from shale and other tight rock formations in North Dakota and Texas. Since September 2011, US oil production has increased by more than 900,000 barrels per day, driven (as with natural gas) by the use of horizontal drilling combined with hydraulic fracking. The new surplus of US oil production supports continued efforts to export both natural gas and oil to higher priced markets overseas. In the short term, only one thing is certain; as the market continues to adjust to a major restructuring of supply and demand, you should expect volatility in energy prices.

The advent of light-emitting diode (LED) lamps and fixtures for the area and spotlighting has created both opportunities and pitfalls. Dimming, in particular, has presented some new challenges.

Many LED product vendors have labeled their units as “dimmable” using standard incandescent dimmers. If the dimming level is relatively minor (e.g., 20%), that may indeed occur successfully. Dimming for energy savings during off-hours, cleaning, or daylighting may, however, involve reductions of 50 to 70%, while architectural dimming for presentations or events may require dimming by 95%. In such cases, dimmed LEDs have demonstrated unacceptable flickering or fluttering.

During the process of delivering electricity, some power is lost through wire resistance, transformers, and other physical causes. Losses may also occur due to theft of service and meter error. Such line losses occur at two levels: while transmitting power at high voltage to a utility’s zonal boundary, and again when distributing it at the lower voltage across a utility’s territory to customer meters.

Solar power from photovoltaic (PV) panels, when secured through long-term contracts, has become competitive with power supplied by utilities. Under a Power Purchase Agreement (PPA), a developer designs, installs, owns, maintains, and operates the PV system at a customer’s site, and sells the power generated by the system to the customer at a competitive rate. Through such arrangements, many facilities are now securing years of lower cost and pollution-free electricity.

I am pleased to forward 5’s second quarterly overview of the energy market. As with our first letter, we cover notable trends and developments in the market over the past few months. We hope that these quarterly reports serve as a natural complement to our weekly market reports (which focus on energy prices), as well as the specific client-based recommendations issued by our advisors.

I am pleased to forward 5’s first quarterly overview of the energy market. This letter covers notable trends and developments in the market over the past few months. We hope that these quarterly reports serve as a natural complement to our weekly market reports (which focus on energy prices), as well as the specific client-based recommendations issued by our advisors.

Several members of the Luthin Associates staff have been purchasing deregulated energy products since the early 1990’s, and during this period we often noted a fairly strong correlation between natural gas and oil prices. It was also a common occurrence when meeting with a CFO for him or her to correlate the rising cost of electricity with the current price of oil.  While this correlation may have once been valid, changes in the market and the evolution of the nation’s energy production infrastructure have diminished the importance of oil in the electricity markets and simultaneously enhanced the significance of natural gas as a price indicator.