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Western Price Survey

April 21, 2006
Impact of Palo Verde Outages to Be Felt Later, Say Utilities

The output of the West's nuclear power facilities continued to fluctuate this week. Pacific Gas & Electric's 1,105 MW Diablo Canyon Unit No. 2 began a refueling outage on Monday, while another California facility showed signs off returning to the grid. San Onofre Nuclear Generating Station Unit No. 2, which has been off line since January, was listed by the Nuclear Regulatory Commission as operating at 18 percent of full capacity at the start of the week. It was not, however, sending power to the grid. The unit stayed at that level throughout the week as operators for the Southern California Edison facility worked to get the turbines spinning correctly. Unit No. 3 is off line for a refueling outage that began a couple of weeks ago.

The status of Palo Verde nuclear facility's three units remained unchanged this week. Unit No. 1 is off line for another month or so for repairs, Unit No. 2 is operating at full capacity and the No. 3 unit is off line for refueling. The reduced power output of the 3,810 MW PV nuclear plant is affecting financial results for some of the power plants' owners.

At Southern California Edison, "we estimate that the cost to substitute market purchases for lost Palo Verde output is approximately $5 million per month for Edison customers," said spokesperson Gil Alexander.

That includes potential wholesale sales that SCE might have made if not for the outages, he said.

"There has been no immediate rate impact, because SCE's generation rate was set for 2006 based on projections of our fuel and purchased power costs for the year," Alexander continued in an e-mail.

"However, our generation revenues at the end of the year are compared with our actual power purchase costs and any difference is reflected in rates in the following year," he said. Any change would affect rates in 2007, he said, but SCE expects "only minor rate impact."

Arizona Public Service, the plant operator, estimated that the reduced power levels will cause it to spend about $46 million more for purchased power (after taxes) as a result of the power outages so far and in June, down from an earlier estimate of $58 million. It estimated that $41 million of the $46 million may be recovered through a future rate case in addition to $44.6 million sought through a pending case for outages at Palo Verde last summer.

Albquerque-based PNM estimates that the loss of power from Palo Verde Unit No. 1 is reducing its consolidated gross margin by $3 million to $4 million a month this year, said spokesperson Frederick Bermudez. Consolidated gross margin is operating revenues minus the cost of energy sold.

The utility does not have a fuel adjustment clause that allows it to seek adjustments for changes in costs, he said. Also, general rates are frozen until 2007. The company may recover the additional expenses through the rate case, however, because it will have a 2006 test year. He doubts the additional expenses will have a significant effect on rates.

El Paso Electric also is taking the problems with Palo Verde unit one in stride.

The utility's load is low during winter and spring, said Steven Busser, vice president of regulatory affairs and treasurer. El Paso Election generally realizes 40 to 50 percent of its wholesale sales margin during the first quarter when its native load is low.

In an 8K filing with the Securities and Exchange Commission, El Paso Electric estimates that the reduced generation, as well as lower than originally forecast wholesale energy prices, will reduce its wholesale sales margins by $12 million to $18 million between January and July 2006.

Salt River Project, a municipal utility that serves part of the Phoenix area, earlier this month said it will absorb $40 million in higher fuel and purchased power costs, mainly because of Palo Verde outages.

SRP said it will pay for higher summer fuel costs with its $55 million rate stabilization fund, which has money saved during the fiscal year ending in April 2005. The utility, however, expects most of the $55 million to be used by the end of the year and said it may raise rates in the fall.

El Paso Electric's Busser acknowledged that APS, the plant operator, has encountered difficulties at Palo Verde, but he contrasts that to a history of good operation.

"APS has run that plant very well for a number of years," Busser said. It operated at 90 percent capacity for several years.

"They are taking steps to get it fixed. This is like turning the Titanic," he said. "We still have a lot of faith in the management of APS, and we're satisfied they will turn this thing around."

The Los Angeles Department of Water and Power and Southern California Public Power Authority, which also have ownership interests in Palo Verde, did not return calls for comment.

APS owns a 29.1 percent interest in Palo Verde; SRP, 17.5 percent; and PNM, 10 percent. SCE and EPE each own 15.8 percent while SCPPA and LADWP each own less than 6 percent.

Palo Verde spot peak power costs ranged from 50 mills to 58.65 mills/KWh this week, displayed little penchant for moving up or down. Off-peak power at the Arizona hub moved for a low of 27 mills/KWh on Monday but drew as much as 39.25 mills/KWh the following day. On Friday, after losing a bit of ground at midweek, the price scooted up to between 35.50 mills and 37.50 mills/KWh.

The value of daytime power North of Path 15 ranged from 53.25 mills to 64.25 mills/KWh much of this week, but values did tail off on Friday. Deliveries for the Saturday-through-Monday period moved for between 45 mills and 53.50 mills/KWh.

Southern California power costs stayed above NP15 prices by a couple of mills this week. Changing hands for between 54 mills and 61 mills/KWh on Monday, peak power attracted a high of 66 mills/KWh the following day. By Wednesday the spread narrowed to a range of 57 mills to 62.25 mills/KWh and on Friday dropped to between 50 mills and 58.25 mills/KWh. Off-peak power hit a high of 40 mills/KWh in Tuesday's trading session, sagging to between 27.50 mills and 30.50 mills/KWh for Friday deliveries. Weekend power changed hands for between 32.25 mills and 37 mills/KWh on Friday.

Peak-time power at Mid-Columbia opened Monday changing hands for between 12 mills and 15.25 mills/KWh before shaving a few mills the following day. The price of daytime power at Mid-C inched upward as the week wore on, closing on Friday at a high of 26 mills/KWh. Nighttime power at Mid-C attracted a low of 3.50 mills/KWh on Tuesday and could barely muster 6 mills/KWh at the end of the week.

At the California-Oregon border, peak power drew between 30 mills and 34.25 mills/KWh on Monday. The price stayed close to that level during the following two days of trading, displaying a slight weakening on Wednesday, when the day's high reached 32.50 mills/KWh. On Friday the price of peak power at COB ranged from 33 mills to 36 mills/KWh. Off-peak power packages at COB stayed comfortably in the range of 8.50 mills to 13 mills/KWh during the week [Shauna O'Donnell and John Edwards].

Natural Gas Bums a Ride on Oil

Natural gas values hitched a ride on the coattails of oil prices this week, increasing steadily in the West throughout the week. With the price per barrel rising to $75 on Friday, it was only the fact that gas trading on the spot market had concluded that kept a lid on the price of that commodity.

Southern California border gas delivered to Topock attracted between $5.84 and $6.03/MMBtu at the start of the week and topped out at $7/MMBtu on Thursday. Trading for weekend deliveries on Friday brought the cost down to between $6.19 and $6.46/MMBtu.

Pacific Gas & Electric CityGate gas opened Monday moving for a low of $6.27/MMBtu before hitting a high of $7.25/MMBtu on Thursday. By the end of the week, gas prices at that receipt point settled for between $6.60 and $6.75/MMBtu [S. O'D.].

Western Electricity Prices
April 17 - 21, 2006
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 23.96-55.71 6.22-100.99
Mid-Columbia 12-26 3.50-6
COB 29-36.25 8.50-13
NP 15 45-64.25 16.50-35
SP 15 50-66 22-40
Palo Verde 50-58.65 26.25-41.50

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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