Western Price Survey
January 13, 2006
A relative calm in the price of natural gas, and the comparatively mild weather throughout the region, has kept power prices in the West from being notably volatile in the past two weeks.
In Southern California, the price of day-ahead peak power ranged from 69.50 mills and 72.25 mills/KWh on Monday. By Wednesday, packages traded for weekend delivery for between 43.75 mills and 50 mills/KWh. Off-peak power attracted as much as 50 mills/KWh south of Path 15, but generally stayed close to the 45 mills/KWh mark this week, though the price did perk up on Thursday when trading was conducted for next-week deliveries. The price topped out at 56.50 mills/KWh that day.
North of Path 15 peak power changed hands for a low of 62 mills/KWh on Thursday, down from a high of 71.75 mills/KWh recorded on Monday. Off-peak power traded for between 45 mills and 50 mills/KWh at NP15 much of the week, heading up to 56 mills/KWh only on Thursday.
Southwest prices stayed just below those recorded at the California hubs. Peak-time power at Palo Verde drew between 64 mills and 65.75 mills/KWh on Monday before steadily slipping during the following two days. By Wednesday the price had dropped to a low of 57 mills/KWh. Off-peak power values at PV ranged from 40.50 mills to 46 mills/KWh, escalating to between 51.50 mills and 58.50 mills/KWh on Thursday.
Power prices in the Northwest were fairly quiet this week. During the first two days of the week, Mid-Columbia peak-time power traded for between 57.75 mills and 64 mills/KWh. On Wednesday, in line with the trading pattern for weekend packages, the price dropped to between 53 mills and 56.25 mills/KWh. Off-peak power opened the week trading for between 46 mills and 48.75 mills/KWh. By the end of the week the cost had scooted up as high as 51.75 mills/KWh.
Barring any hitch in the regulatory approval process, Duke Energy's assets in California and Arizona will be turned over to LS Power Equity Partners by midyear. The deal, announced on Monday, would also include a power plant in Maine and another in Connecticut. The deal, worth potentially $1.54 billion, would accomplish for Duke what the company set out to do last September--divest itself of all of Duke Energy North America's power plants and portfolio of contracts outside of the Midwest.
LS Power Equity Partners is a member of the LS Power Group, an investor-management team that focuses exclusively on the power sector. Founded in 1990, LS Power has managed to keep an extremely low profile. Its Web page consists of one page listing the name of the company, a brief description of the firm and contact information for a New York-based managing director, Darpan Kapadia.
Duke, which is now wending its way through a complex, multi-state approval process for its planned merger with Cinergy, would turn over to LS Power Equity Partners the following power facilities:
As part of its exit strategy from the DENA side of its business, Duke announced in November that it would transfer to Barclays Capital its portfolio of derivatives contracts. Barclays Capital, a subsidiary of Barclays Bank, would also receive approximately $700 million in connection with this transfer. The payment reflects the amount by which the portfolio of contracts is below current market value, stated Duke when the deal was announced November 18. The company noted that the payment would be significantly offset by the return of collateral once the con-tracts were moved off its plate.
LS Power Equity Partners will inherit from Duke the modernization of the Morro Bay power plant. Duke received California Energy Commission approval in 2004 to replace the 50 year-old units at the plant with two combined-cycle units with total capacity of 1,200 MW. Duke subsequently put the upgrade project on hold. However, the company did announce early last year that it had signed a contract to supply 650 MW of capacity to Pacific Gas & Electric from two of the Morro Bay units.
A total of 1,500 MW of capacity from the Moss Landing facility was put out to bid last summer but Duke has not announced results of that request for offers.
The sale of the DENA generating assets to LS Power will provide Duke with a one-time, pre-tax gain of approximately $330 million. The transaction will not have any impact on Duke's ongoing earnings be-cause the assets are currently classified as "discontinued operations."
Duke and LS Power must now seek Federal Energy Regulatory Commission and Federal Trade Commission approval of the sale of the power plants [Shauna O'Donnell].
Gas Costs Slip into Single Digits
If the weather does not rally and blanket the country with a significant, sustained chill, natural gas prices on both the futures and day-ahead markets may soon look more like they did before the recently concluded hurricane season began. In Thursday's trading session, February gas deliveries traded for as low as $8.91/MMBtu on the New York Mercantile Exchange, the first time the price has been below the $9 level since the summer.
On the spot market, producing basin gas this week ranged from $7.265 to $7.90/MMBtu at San Juan, and between $7.11 and $7.90/MMBtu at Permian.
Coming into California, gas traded for as much as $8.28/MMBtu at the Southern California receipt point at Topock. Still, the price at the hub this week hovered mostly just under the $8 mark. In Northern California, the commodity attracted between $7.76 and $7.90/MMBtu at the Malin hub at the start of the week. After topping out at $8.10/MMBtu on Thursday, the price slipped to between $7.75 and $7.84/MMBtu at the week's close [S. O'D.].
Archives of the Western Price Survey for the past year are also available online.
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