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Western Price Survey

August 12, 2005
Gas Continues to Pressure Power Costs

The price for power in the West of late reflects a summertime premium, but even more influential than the season or the temperature is the continuing strength and unpredictability of natural gas prices.

The price of power in California opened the week in the low 80s, with peak power north of Path 15 trading for between 81.75 mills and 83.50 mills/KWh, and south of Path 15 for between 83 mills and 85 mills/KWh. The price in both regions slipped to between 77 mills and 80 mills/KWh at midweek but scooted across the 80 mills threshold in Friday trading. Off-peak power in NP15 territory barely moved from a range of 49.50 mills and 52.75 mills/KWh this week until Friday. Another uptick in the price of natural gas that day moved the cost of low-demand power up to a high of 65.75 mills/KWh. The cost of off-peak power at SP15 attracted nearly identical prices this week, closing the week at between 63.25 mills and 66 mills/KWh.

At the Palo Verde hub, prices hovered just below the levels recorded in California. After trading on Monday as high as 78 mills/KWh, daytime power supplies at PV drew between 70.50 mills and 73.50 mills/KWh on Wednesday. By Friday the price had moved up to 82.50 mills/KWh, largely in response to the shutdown of Unit No. 1 at the Palo Verde Nuclear Generating Station. The 1,243 MW unit was taken off line to repair a diesel generator associated with the plant. Nighttime power at the Southwest hub changed hands for between 45.75 mills and 48 mills/KWh during the first three days of the week.

Arizona Public Service is preparing to install two new steam generators at Unit No. 1 of the Palo Verde Nuclear Generating Station. The utility installed new steam generators at Unit No. 2 in 2003 and intends to replace the generators in Unit No. 3 by 2007, said spokesperson Jim McDonald. The generators are expected to increase capacity at the 3,810 MW plant by 3 percent, or about 115 MW, he said.

Total cost will be about $700 million and will be divided among the owners, according to the percent-age of ownership, McDonald said. APS has a 29 per-cent stake in the plant. Other owners are Salt River Project, Southern California Edison, El Paso Electric, PNM, the Southern California Public Power Authority and the Los Angeles Department of Water & Power.

The two existing generators will be lifted out and the new ones put in place. As a result, the affected unit will be taken out of service starting in late September and remain out until November, McDonald said.

APS announced plans this week for transporting the replacement units to Palo Verde. A barge will carry the 800-ton heat exchangers to Puerto Penasco, Mexico. From there, the generators will be trucked to Palo Verde, which is 50 miles west of Phoenix. As a result, APS warned of some temporary road closures in Arizona starting the week of August 14. The two vehicles carrying the generators will move at about three to four miles per hour, periodically stopping to cool down and allow traffic to pass.

The move will take 12 to 14 days and is expected to be completed by early September.

Peak power in the Northwest attracted as much as 78.25 mills/KWh on Monday. The price dipped by about 8 mills at the Mid-Columbia trading hub in subsequent days, but managed to gain back some ground on Friday, closing that day between 72 mills and 76 mills/KWh. Off-peak power at Mid-C took off at the close of the week. Having moved for around 48 mills to 50 mills/KWh much of the week, nighttime power was valued at between 59 mills and 62.50 mills/KWh for deliveries scheduled for early next week [Shauna O'Donnell and John Edwards].

EIA Reports Natural Gas Prices Are on the Up and Up

Oil costs have been leaning heavily on gas prices for the past couple of months, and this week was no exception. The price of crude oil hit $65 per barrel on Wednesday, after the US markets caught wind of possible tight supplies and high demand in coming months. Natural gas prices reflect this upward price trend, with Western gas costs holding strong in the mid-$7 to $8/MMBtu range this week.

The Energy Information Administration's short-term energy outlook released this week forecast a persistent, steady increase in both the cost and the demand for natural gas over the final months of 2005. For instance, the report forecast the spot price for gas at Henry Hub would average $7.63/Mcf this year. Still, that price would likely be a welcome relief to buyers in the New York gas markets this week, where the day-ahead cost broke through the $10 ceiling and traded as high as $10.41/MMBtu on Friday.

The EIA's short-term outlook for August pegged the rise in price to a number of factors, including high oil prices, the strength of the US economy, the potential for hurricane-related constraints on domestic natural gas production and lack of expansion in that production. The report estimated that domestic production both this year and next would remain at 2004 levels -- even though new well openings would increase at an average annual rate of 16 percent.

Closely watched storage numbers associated with the amount of gas available from underground facilities are not expected to increase dramatically over the next four months, said the EIA. As of August 5, there is 2,463 Bcf of gas in underground storage -- 6.4 percent more than the five-year average. Still, a normal 2005-2006 winter heating season would likely draw down any surplus stored gas.

End-users are likely to see a price hike of 10 percent or more for natural gas, with consumers in regions with severe winter weather feeling the greatest pinch in their pocketbooks [S. O'D.].

Western Electricity Prices
August 8-12, 2005
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 16.74-229.04 10.51-133.37
Mid-Columbia 67.50-78.25 47-62.50
COB 71-80 50-65
NP 15 77-84 49.50-65.75
SP 15 77.25-86 49-66
Palo Verde 70.50-82.50 45.75-62.25

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.

Please contact with questions or comments about this site.

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

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