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Western Price Survey

Febuary 17, 2006
Late Arrival of Winter Weather Leaves Prices Unimpressed

FERC staff presented an assessment of the nation's natural gas and electricity markets during the winter at this week's commission business meeting. The most notable driver of market behavior and its effect on the price of energy during December and January was the weather. With January temperatures averaging the highest level in 112 years of record-keeping, the price of electricity and, in particular, natural gas, spiraled downward. After exceeding $15/MMBtu in the aftermath of Hurricanes Katrina and Rita, gas prices in January close to $7.30/MMBtu.

The amount of natural gas in underground storage now stands at more than 40 percent above the five-year average figure. FERC staff noted that storage facility operators are now faced with the unusual situation of trying to figure out how to get gas out of storage despite the low demand. According to FERC staff, operational protocol requires that storage inventories must fall to certain levels at the end of the winter heating season.

"This is a remarkable story," stated staff in a report that accompanied the presentation. After starting the winter in a strong inventory position but with real concerns as to the availability of supply from the Gulf for the winter, our literally 1-in-100 chance warm weather has resulted in a current surplus of gas inventory. We bet, as a country, on mild weather, and we hit the jackpot."

As for investment in generation during 2005, staff noted that the year was dominated by developments controlled by the investor-owned utilities. Across the country, IOUs added 7 GW of capacity to the stock of generation, nearly tripling their investment in 2004. Utility affiliates added another 2 GW. Municipal utilities and cooperatives contributed about 4 GW in 2005, a bit less than the year before. Independent power producers added another 4 GW of capacity to the nation's fleet of generating units, down from 7 GW in 2004.

Addition of new generation totaled throughout the country totaled 17 GW in 2005, down 25 percent for 2004 and 75 percent less than the amount added in 2002. Staff said that they estimated generation additions to in 2006 to be less than half of what was brought on line in 2005. In this week's trading of electricity on the day-ahead market, prices in the West were affected by a shift in the weather as a brisk front moved in from the Pacific Ocean. Still, any invigoration of electricity prices on account of the drop in temperature was tempered by enervated natural gas prices.

The weather in the East this week was downright balmy compared to the Midwest and West. According to one weather chart, the temperature in California this week was anywhere from 7 to 10 degrees lower than normal, while in the Northwest the thermometer dipped as much as 20 degrees lower than normal. New England, however, experienced temperatures as much as 20 degrees above the normal high recorded in that region.

In Northern California, day-ahead power moved for between 55.50 mills and 58 mills/KWh on Monday before bumping up as high as 63.50 mills/KWh in late-week trading. The cost of off-peak power ranged from a low of 46 mills/KWh on Monday to a high of 55.60 mills/KWh recorded on Thursday. That day's trading session was conducted for power scheduled to move Sunday and Monday. Usually Thursday activity is marked for weekend deliveries, but the Presidents' Day holiday next Monday, February 20, pushed the trading schedule back a day.

In the southlands, peak-time power changed hands for a high of 64 mills/KWh on Tuesday. Deals were also struck at that price on Thursday. This week's low south of Path 15 occurred on Monday, when daytime power moved for between 56 mills and 59.50 mills/KWh. Off-peak power packages changed hands for between 45.75 mills and 53 mills/KWh at the start of the week. That spread narrowed on Wednesday to a range of 47.75 mills to 51.35 mills/KWh.

In the Northwest, daytime power prices remained an average of about 8 mills below the cost of California power during the first two days of the week. That difference was made up on Wednesday, when Mid-Columbia peak-time power cost just 2 to 3 mills less than Golden State power. Mid-C peak power slipped back to 58 mills/KWh on Thursday, when off-peak power had the distinction of trading for that amount as well.

Even the ramp-down of the Columbia Generating Station from its full 1,157 MW capacity did little to invigorate Northwest power prices. Energy Northwest throttled back power output at the nuclear facility to 60 percent at midweek in order to locate and repair a suspected leaking condenser tube in one of the plant's three waterboxes. The leak was allowing small amounts of circulating water to enter the highly purified reactor coolant system. Over time, this could damage internal components and decrease plant efficiency.

California-Oregon border prices straddled the margin between the California and Mid-C values. Peak-power exchanges at COB moved for between 51 mills and 61.25 mills/KWh this week. Off-peak power at the hub opened the week trading for a low of 47.50 mills/KWh. The high for the week, 57 mills/KWh, was reached on Thursday for packages to be delivered early next week.

Peak-time power scheduled for delivery to the Palo Verde hub attracted a low of 51 mills/KWh on Monday, but the price hunkered down in the mid- to high fifties the rest of the week. Nighttime power at Palo Verde was bought and sold for between 43.50 mills and 48 mills/KWh during the first half of the week. By Thursday the price of off-peak power rose as high as 53.75 mills/KWh [Shauna O'Donnell].

Large Storage Inventory Leads to Softening Gas Prices

The Energy Information Administration's report on Thursday of a hefty draw of 102 Bcf of natural gas from the nation's underground facilities reflected the impact of the snowstorm that hit the eastern part of the country last week. Nevertheless, supplies available for withdrawal from storage currently total 2,266 Bcf, more than 40 percent above the five-year average.

The price of gas is lower now than it has been since last summer, indicating the damage wrought by Hurricanes Katrina and Rita has been mostly ameliorated.

The price of Permian Basin gas threatened to drop below the $6 floor on Tuesday, but hung on to close that day at a low of $6.01/MMBtu. The high price for the week at the basin, $6.92/MMBtu, was recorded on Friday.

Values of gas at Western receipt points stayed below $7 throughout the week, except for Pacific Gas & Electric's CityGate hub, where gas moved for $7.04/MMBtu on Friday.

An accidental natural gas explosion interrupted Nevada Power's construction of the 1,200 MW, combined cycle Chuck Lenzie Generating Station this week. But Roberto Denis, senior vice president of Nevada Power parent Sierra Pacific Resources, said the company remains optimistic that it will complete the project, which is located north of Las Vegas, by the June 1 deadline.

The first of two blocks at Lenzie began commercial operation on January 26, far in advance of its March 31 deadline, he said.

Workers had been running the second block for 36 hours when it was shut down because of a natural gas leak.

Gas apparently gathered in the heat recovery steam generator, and possibly a spark or hot spot caused the explosion at 11 a.m. February 13. It threw a structural support for heavy ductwork about 100 feet, but no one was injured. The company believes only the ductwork sustained damage. Insurance is expected to cover the cost of repairs, but Denis was unable to estimate the amount of damages [Shauna O'Donnell and John Edwards].

Western Electricity Prices
February 13 - 17, 2006
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 43.02-110.79 13.81-66.61
Mid-Columbia 47.25-60 46.75-58
COB 51-61.25 47.50-57
NP 15 55.50-63.50 46-55.60
SP 15 56-64 44.40-55.75
Palo Verde 51-58.5 42.65-53.75

Archives of the Western Price Survey for the past year are also available online.

The Western Price Survey is excerpted from Energy NewsData's comprehensive regional news services. See for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of either or both California Energy Markets and Clearing Up.

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Contact Shauna O'Donnell, editor with questions regarding Price Survey Content.

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