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Western Price Survey

Week's End Edition
August 25, 2006
Power Prices Quiet, Palo Verde Report Tough on APS

Modestly high loads combined with ample generation to keep California's power equilibrium weighted on the supply side of the equation this week. With all West Coast nuclear power plants operating at full throttle and few other supply issues pressuring operations, the California Independ-ent System Operator had enough power at its disposal to keep the grid humming.

Neither demand nor natural gas costs put much pressure on spot electricity prices during the week, and the price of daytime power throughout the West eased downward as the week progressed. As is typical, Friday brought with it an increase in the cost of power following the also-typical Thursday fade for trades of weekend power.

The price of peak-time power at the North of Path 15 hub opened the week at between 67.75 mills and 75 mills/KWh, but that spread narrowed the following day, tightening to a range of 66.50 mills to 69.50 mills/KWh. On Thursday, daytime power was pinched some more, trading for between 64.25 mills and 65.75 mills/KWh. Friday packages scheduled for delivery early next week attracted between 69 mills and 71.50 mills/KWh.

Off-peak power at NP15 traded for between 43 mills and 45 mills/KWh on Monday. By Wednesday the value of nighttime power at the hub had moved up to 48.50 mills/KWh. After spend-ing the next day close to that level, off-peak power was tagged for as much as 57 mills/KWh in Fri-day's session.

SP15 off-peak power costs trailed the NP15 price by less than 1 mill at the start of the week, opening at a range of 42.75 mills to 44.25 mills/KWh. The value of nighttime power at SP15 matched the NP15 high on Friday, closing at 57 mills/KWh. Daytime power at SP15 opened the week at a high of 76.25 mills/KWh before slipping to between 67.75 mills and 70 mills/KWh on Wednesday. Weekend packages were exchanged for between 62 mills and 66 mills/KWh on Thursday. Peak power moved for as much as 76 mills/KWh on Friday.

The value of Northwest power cooled off over the weekend. After closing last week at a high of 75 mills/KWh, Mid-Columbia peak power cost between 58.50 mills and 67 mills/KWh on Monday. The price dropped down to a range of 57.25 mills to 59 mills/KWh the following day and hovered at that level through the Thursday trading session. Next-week power drew between 60.75 mills and 62.50 mills/KWh on Friday.

Though plant outages appeared to have little influence on the price of power in the West this week, a handful of units checked into Cal-ISO's sick bay during the first half of the week, with most checking out just as quickly. On Monday the 336 MW Moss Landing No. 4 unit was off line, as was the La Paloma facility's 259 MW No. 1 unit. Both outages were listed by the grid manager as un-scheduled and both units were back on line on Tuesday, although the La Paloma unit continued to hold back about 20 MW of capacity.

AES' No. 8 unit at the Redondo Beach facility was off line Tuesday, but the 495 MW power plant managed to ratchet back up to 50 percent output the following day and was fully functional on Thursday. And finally, Reliant's 741 MW Ormond Beach Unit No. 1, which began an unplanned outage a few weeks ago, remains off line.

Arizona Public Service's request for a $44.6 million increase to recoup outage costs at the Palo Verde Nuclear Generating Station should be cut by $17.4 million, Arizona regulatory staff and out-side analysts concluded.

In a February filing with the Arizona Corporation Commission, APS asked to recover the $44.6 million for outages at Palo Verde and now plans to contest the report's recommendation to reduce the recovery for Palo Verde outages.

Prepared for ACC staff by GDS Associates, the report stated that four of 11 outages in 2005 resulted from imprudence and could have been avoided. Of the four, three should be disallowed, according to the report.

"By almost any measure, the performance of Palo Verde in 2005 was poor," the report stated.

Palo Verde's generation for APS fell by 1.05 million MWh in 2005 from the average between 2001 and 2003. Production costs increased 30 percent to $16.94/MWh from $12.94/MWh.

The report cited an article in Nuclear News that shows the net capacity factor for the Palo Verde units ranked 99th, 97th and 93rd among the 104 US nuclear power plants.

"The performance of Palo Verde during the 2003 to 2005 period was at the bottom of the US nuclear industry," the report concluded.

APS customers pay for the high capital costs of a nuclear plant, whether or not it is operating, and no benefit results from low fuel and other variable costs when Palo Verde is not operating, the report said. In addition, APS must buy higher-cost power when Palo Verde is out of service.

"Only when Palo Verde is operated at a high capacity factor do APS ratepayers receive the economic benefit," the report said.

Yet capacity declined to 77 percent in 2005 from 94 percent in 2003, the report showed.

The consulting firm noted that the Nuclear Regulatory Commission in 2004 gave Palo Verde a "yellow" ruling for failing to keep safety-related piping full of water. By year-end 2005, only one other facility, the Kewaunee nuclear power plant, had an open "yellow" ruling.

The NRC cited deficiencies in human performance, problem identification and resolution and safety consciousness in the work environment, according to GDS. APS found "substandard perform-ance" in the corrective action program at Palo Verde, the report observed.

On the positive side, GDS found no evidence that Palo Verde operation was unsafe during 2005. It said Palo Verde managers make nuclear safety a top priority.

GDS was optimistic about APS' Performance Improvement Plan for Palo Verde, noting the "full backing" of APS management. But GDS concluded it was too early to evaluate PIP results.

During a pending rate case, the ACC should consider establishing performance standards for Palo Verde and penalties for when performance falls below those standards, the ACC staff urged.

The commission also should require APS to file semiannual reports on plant performance, explaining negative findings and outlining corrective action that the utility took, according to staff.

With Palo Verde now 20 years old, programs should be established for dealing with aging equipment, according to the report. The commission should order APS to evaluate equipment aging and report to the ACC within 120 days of an order.

"Two of the 2005 outages could have been avoided with better inspection of parts and compo-nents prior to installation," the staff commented, calling for procedures for inspection of equipment before it is installed. In addition, the staff suggested that the five-member regulatory body deal with Palo Verde performance issues as part of the rate case and filed a motion to consolidate the two cases [E-01345A-05-0816 and E-01345A-05-0826].

GDS concluded that APS was not imprudent because of outages caused by vendor-supplied equipment. The analytical firm also concluded it was too early to determine the prudence of shutting down Palo Verde Unit No. 1 because of cooling-line vibration [Shauna O'Donnell and John Edwards].

Gas Prices Edge Up Despite Calm Week

Natural gas costs edged up in fits and starts this week in the West. As with power values, the price of gas on the day-ahead market felt little incentive in the form of increased demand or de-creased supply to move either up or down much. Nevertheless, the trend was decidedly upward as the week wore on.

Deliveries of gas to the Southern California border receipt point at Topock were billed at be-tween $6.46 and $6.58/MMBtu at the start of the week. Wednesday saw the price rise to as much as $6.88/MMBtu. After a slip down to a range of $6.70 to $6.805/MMBtu on Thursday, Topock gas topped out at $6.95/MMBtu on Friday.

Malin deliveries into Northern California followed a similar trend, only the value of gas enter-ing the state at that receipt point steadily increased over the course of the week. Gas trades conducted on Monday settled for between $6.12 and $6.23/MMBtu. The commodity gained about a dime in value over the next few days, closing on Friday at a high of $6.75/MMBtu.

Pacific Gas & Electric CityGate gas drew between $6.84 and $6.92/MMBtu during the first two days of the week. By Wednesday the price of CityGate gas exceeded $7 and by the end of the week hit $7.31/MMBtu [S. O'D.].

Western Electricity Prices
Week's End: August 21 - 25, 2006
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 29.76-280.12 18.08-173.14
Mid-Columbia 55.50-67 41.25-54.50
COB 59.50-68.25 42-56
NP 15 55-75 43-57
SP 15 62-76.25 42.75-57
Palo Verde 57.25-67.50 38.75-53

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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