Western Price Survey / Archives
April 28, 2000
Somebody turned the heat up under Western energy markets this week, as a burst of hot weather in Arizona drove utility demand and power prices higher than expected in the desert and in Southern California. Part of the problem was that several major power plants, including Palo Verde No. 3, were still on spring break when the weather changed. Contributing to the market panic was a slow return to service by the San Juan No. 1 unit, which was supposed to end a maintenance outage on Sunday but could only muster half power by midweek.
Still the market response was way beyond what would be expected, particularly since overall demand-though higher than forecast-was nowhere near record levels.
Tuesday and Wednesday afternoons marked the high points in pricing, with things calming down on Thursday, partly because the end of the month had people already trading in advance of the weekend. Where Palo Verde prescheduled trades exceeded 75 mills/KWh midweek, they were dropping fast to the 38 mills to 55 mills/KWh range for Saturday deliveries and 26 mills/KWh for all of Sunday.
While the unconstrained clearing prices for the California Power Exchange topped out at 40 mills/KWh for Thursday and dropped below 32 mills/KWh for Friday, day-of markets and congestion prices were at a much higher level.
For instance, the day-ahead zonal prices on Thursday averaged between 95 mills and 99.4 mills/KWh for peak periods for Southern California areas South of Path 15 and Southwestern transmission corridors from Palo Verde/AZ3 and Mead/LC1. For a few hours, the zonal prices at SP15 and AZ3 ranged between 249 mills and 368 mills/KWh.
CalPX day-of and hour-ahead bids reached 190 mills/KWh and the Exchange needed to schedule as much as 1,280 MW of added capacity beyond prescheduled loads. Over on the Cal-ISO reliability markets, several ancillary services and imbalance energy prices topped out at the $750/MW ceiling price.
All of this frenzied activity helped drive prices up everywhere else, even in the isolated Northwest. Where prices had been moving lower on increased hydroelectricity production and spring runoff, the prices reversed course and moved much higher. Off-peak energy prices had fallen into single digits at the start of the week, but more than doubled midweek. The overall result was an extremely wide range of reported prices at all hubs that schedulers and traders hoped was just a temporary aberration.
Looking ahead, while San Juan operators would not commit to a full power schedule, the problem related to testing new controller equipment, so traders anticipated the plant would be back to 100 percent in the near term. Palo Verde was already reported to be exiting its refueling outage, so it might be available as soon as next week. Additionally, the very hot temperatures were expected to moderate rather than spread, leaving utilities optimistic that this was a temporary phenomenon.
Still, some expressed concern that the price spikes triggered by a transient heat storm could be a harbinger of a troublesome summer marketplace. "Loads seem to be a lot higher this year at the same temperatures. If that holds for summer, we could be in trouble" [Arthur O'Donnell].
Gas Sympathizes with NYMEX
Although southern basin and border costs held to higher levels based on extreme power markets and end-of-month balancing transactions, natural gas prices finally gave in somewhat toward the end of the week, reluctantly following the national NYMEX benchmark lower.
The Southern California Border price had been up to $3.08/MMBtu earlier but eroded to the $3.05 to $3.06/MMBtu level on Thursday. Permian fell to $2.79/MMBtu from the mid-$2.80s and San Juan slipped to $2.74/MMBtu.
"The Arizona heat kicked power markets up" and kept the gas price higher than it might otherwise be, one trader suggested. More important, though, was that monthly accounts needed to be settled and the last two days of the month were non-trading weekend dates. " If everyone tends to be on the short side, they'll be buying to get into balance before the weekend."
Northern markets were "languishing compared to their earlier heights," said a California utility buyer. Malin dropped to $2.91 from the $2.99/MMBtu peak reached earlier and PG&E CityGate prices dropped to $3.11 from about $3.17/MMBtu.
The Alberta index was up and down late in the week, first weakening to $(C)3.75/Gigajoule from an earlier high of $3.87/Gj, then finding late strength to rise again to $3.81/Gj before settling at $3.77/Gj [A. O'D.].
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