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Western Price Survey / Archives

April 7, 2000
Phantom Constraints Bring Real Price Spikes in Southwest

Even though scheduled transmission line repairs between Palo Verde and Southern California were called off this week, congestion prices nearly doubled the apparent cost of energy deliveries through the California Power Exchange at southern zones. The Cal-PX average price has remained fairly stable all week in the 34 mills to 35 mills/KWh range, but late zonal prices at AZ3 (the Southwest Power Link) and SP15 topped 55 mills/KWh for daytime deliveries. Lines from Mexico were even higher at 66 mills/KWh, according to the exchange's daily reports.

A spike to 127 mills/KWh on the PX day-of market for hour 20 on Thursday may have pushed the averages higher at SP15 and AZ3. Other reports of prices up to 200 mills/KWh in imbalance energy markets also spurred the market to unusual heights.

A wide variety of factors may help explain the situation: Residual high gas costs and supply concerns because of maintenance on the Transwestern pipeline, or a burst of 90-degree weather in Arizona just as a big generators at Palo Verde No. 3, San Juan and Springerville were offline for spring maintenance. In addition, Palo Verde No. 1 reduced output slightly to 96 percent to perform turbine control valve tests. The unit was reported moving back to full capacity Friday morning, though.

One issue that was more of a psychological factor was the cancellation of line repairs on the Southwest Power Link that would have cut import capacity by up to 1,200 MW, except for the fact that the work was postponed by the California Independent System Operator. The alteration of scheduled repairs caused a "lost opportunity: for some Desert power sellers who had been staying away from scheduling into the California market because they figured congestion would push their returns below their costs.

Some sources reported that an opposite effect occurred after the line work was cancelled, and traders flooded Southern California with power, hoping to capture the high prices, and causing even more congestion. In any event, the situation appeared to be returning to normal by Friday morning.

It was still uncertain how the gas supply curtailments affected in- state power generation, as nearly everyone reported utility loads were down on moderate weather. The Cal-PX daily load profile rose above 500 GWh only once during the week and was mostly around 490 GWh.

In bilateral markets, Palo Verde prices rose to 37.5 mills on Thursday but seemed to ease elsewhere as a result of cooling temperatures in California and running waters in the Northwest.

The California/Oregon Border price moved to the lower end of the 32.5 mills to 34.5 mills range it had been in all week. Mid-Columbia was seen dropping below 30 mills/KWh for daytime power and traders finally noted significant slippage in off-peak prices to 20 mills/KWh at Mid- C. The Cal-PX off-peak price moved from a high of 26 mills on Monday to 22.8 mills/KWh for Friday deliveries.

Still, these prices are well above season "normal" levels. The big factor will be how much hydroelectricity comes as a result of fish flush regimes on the Columbia River. One reflection of the expectation for additional supplies and lower prices is that the WNP-2 nuclear project moved into "economic dispatch" mode this week, dropping to 80 percent of capacity beginning April 1.

If not for the high Cal-PX prices, some traders speculated, NW prices might have moved even lower. "Everyone is expecting the light load price to drop, but it just hasn't done so," said one utility scheduler. Others indicated that there still seems to be enough of discretion by water managers to move flows into higher-priced peak hours, but once the flows begin in earnest, they will have no choice but to reduce prices to move surplus power [Arthur O'Donnell].

Stubborn Gas Prices Stick to High Ceiling

Local market factors bucked national trends in natural gas markets this week, but the lack of fuel demand and moderate weather still did not bring much of a change to prices. Where the national NYMEX benchmark popped upward on Thursday, Southwest basin and border prices moved slightly downward. Across the country, gas storage diminished to about 30 percent of working capacity as shippers pulled supplies, except in the West, where they pumped an additional 5 BCf into the ground for later use.

Even the transmission outages on the Transwestern pipeline into California did not have the impact some traders expected, probably because generation demand was low. As Transwestern resumed flows to Southern California points, there was a little market movement, but some speculated it was just from shippers who still could not get anything on the PG&E southern system-which will be back to normal starting Saturday.

There was an operational flow order on PG&E's northern pipes Thursday, but it was because "the gas has nowhere to go," one trader reported. San Francisco CityGate prices dropped from $3.15 to $3.06/MMBtu after the OFO. "There isn't a lot of demand."

SoCal Border prices hovered around the $3/MMBtu level all week, slipping to $2.97 on Thursday, even as NYMEX moved up $0.05/MMBtu. Permian Basin edged up a few cents to $2.76/MMBtu but San Juan Basin eased to $2.68 after reaching $2.71/MMBtu.

The Alberta hub price was still strong at $(c)3.65/Gigajoule, making it less economical to ship gas into California. In contrast the Malin price was $2.79/MMBtu [A. O'D.].

Western Electricity Prices
Week of April 3-7, 2000
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 22-83 6.4-24
California PX (WAC) 34.1-35.8 22.8-26
Mid-Columbia 30-31 20-21
COB 32.5-34.5 23-25
Palo Verde 32.5-37.5 17-24

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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