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Western Price Survey

October 14, 2005
Western Prices Buoyed by Palo Verde Outage

Arizona Public Service was forced to shut down two units at the Palo Verde Nuclear Generating Station at the beginning of the week. Unit No. 1 at the 3,875 MW facility was previously taken off line for a scheduled refueling. In the event of an emergency in which the reactor loses coolant, there is a possibility that pressure to switch from one source of water to another will be insufficient, found Nuclear Regulatory Commission inspectors at the plant last week.

Power prices at Palo Verde were pushed up on the news of the shutdowns. Peak-time power at PV opened Tuesday trading between 90.50 mills and 96 mills/KWh. By Wednesday the price had swelled to a high of 108 mills/KWh. Thursday trading, for power scheduled for delivery over the weekend, dropped off somewhat, with peak-time power moving for between 92.50 mills and 99 mills/KWh. Off-peak power at the hub also took a hike at midweek, moving from a low of 67 mills/KWh Tuesday to a spread of between 79.75 mills and 83.25 mills/KWh the following day. Trading was not conducted Monday on account of the holiday.

The removal of the Palo Verde facility from the grid also boosted the price of power in California. South of Path 15 power attracted as much as 117 mills/KWh at midweek for daytime deliveries, while off-peak power costs ranged from 77 mills to 88.50 mills/KWh in the early part of the week. By Friday the cost of daytime power at SP15 had sagged, dropping to between 91.75 mills and 99 mills/KWh.

The price of peak power North of Path 15 fell in step with SP15 power costs, topping out at 116.50 mills/KWh in Wednesday trading. Weekend power went for between 99.75 mills and 108.25 mills/KWh in Thursday trading, but Friday's session brought prices down even further. Peak power moved for a low of 92 mills/KWh that day. Low-demand power opened the week trading for between 78.25 mills and 82.25 mills/KWh before tacking on about 5 mills on Wednesday. End-of-the-week prices closely matched those recorded Tuesday.

Price movement this week reflected not only the loss of supply from Palo Verde, but the continu-ing double-digit cost of natural gas used to fuel much of the generation in California and the Southwest. It certainly was not the loads driving the price of the commodity upward.

The California Independent System Operator recorded peak-demand figures in the comfortable range of 32,000 MW to just under 35,000 MW this week. And, aside from the derate of Palo Verde, only a handful of other major generating stations were forced off line this week. At Four Corners, dynamic scheduling of energy into California was curtailed by 504 MW out of a total of 760 MW. Mohave Generating Station Units No. 1 and No. 2 remain in the sick bay, with each ramped down by anywhere from 80 MW to 170 MW on any given day. AES' Huntington Beach No. 3 was unavailable for unplanned reasons this week. That 225 MW unit was joined off line on Thursday by the 227 MW No. 4 unit at the facility.

In the Northwest, peak power cost about the same as low-demand power in California. Mid-Columbia daytime deliveries changed hands for between 82.25 mills and 86.25 mills/KWh in early-week trading. Nighttime power attracted nearly the same amount, moving for as much as 82.50 mills/KWh on Wednesday.

California-Oregon Border power attracted close to 90 mills/KWh for daytime deliveries early in the week. A gain of a couple mills was recorded at midweek, but by Thursday the price for peak power had slipped back to between 90 mills and 91.50 mills/KWh. Nighttime power at COB followed a similar pattern. Tuesday power drew about 80 mills/KWh and tacked on a few mills the following day. By Friday the cost of off-peak power at the hub sat at about 83 mills/KWh.

Arizona Public Service owns a 29 percent interest in Palo Verde and the facility provides 27 percent of APS's retail energy load. Other owners of the facility include Salt River Project, which has a 17.5 percent stake in the plant; Southern California Edison, 15.8 percent; El Paso Electric, 15.8 percent; PNM, 10.2 percent; the Southern California Public Power Authority, 5.9 percent; and the Los Angeles Department of Water & Power, 5.7 percent. Palo Verde has been in commercial operation since 1986.

Arizona Corporation commissioners "are very concerned," said spokesperson Heather Murphy. "Palo Verde is our cheapest source of energy," she explained. However, the ACC lacks jurisdiction over nuclear plant safety, which the NRC regulates.

The state commission does, however, authorize retail rates charged by investor-owned utilities. With the escalation in the price of natural gas and, in turn, the cost of electricity from gas-fired gen-erating facilities, APS and the other owners of Palo Verde have been able to insulate themselves from the high costs to the extend that they receive power from the nuclear facility.

With all the outages at Palo Verde in the past year, APS in July asked the ACC for a $100 mil-lion fuel-cost adjustment increase to its retail rates. The company later agreed to slice $20 million from the request, the amount it said it used to procure replacement power during outages at Palo Verde between April and July of this year. The company will seek recovery of the $20 million at a later date. No doubt that amount will increase substantially as a consequence of the current outage at Palo Verde (see CEM No. 842 [18.2]).

Safety concerns emerged about the emergency cooling system in August 2004 when it was noticed that piping in the system was dry although it should have contained water. APS was fined $50,000 for that violation. Experts worried that the equipment might malfunction under some acci-dent scenarios, and the Nuclear Regulatory Commission labeled it a category yellow situation, the second most serious of four violation levels. The NRC began on-site inspections last month.

Units No. 2 and No. 3 remain on hot standby status and there is currently no estimate for when they will return to service. Unit No. 1 will continue its refueling outage, estimated to last between 75 and 100 days. During that time, two new steam generators will also be installed in the unit [Shauna O'Donnell].

Slow Recovery in Gulf Brings No Quick Relief to Gas Prices

The Gulf Coast natural gas production and delivery systems continue to put themselves back together. At the end of last week, price quotes were available for the benchmark Henry Hub for the first time since Hurricane Rita landed on September 24. While the hub is not entirely operational, 12 of the 14 pipelines connected there are no longer under force majeure. Spot prices at Henry ranged from $13.60 to $14/MMBtu at midweek before dropping to between $12.71 and $13.05/MMBtu on Friday.

Natural gas costs in the West remained above $10/MMBtu this week. Permian Basin gas at-tracted a high of $11.60/MMBtu on Wednesday, while gas at San Juan topped out at $11.31/MMBtu that same day.

Gas deliveries into California continue to attract between $10 and $11/MMBtu. Topock gas drew a high of $11.86/MMBtu on Wednesday, but slipped down to $10.45/MMBtu at the end of the week. PG&E CityGate gas was tagged at $12.15/MMBtu at midweek, but mostly stayed in the mid-$11 range this week [S. O'D.].

Western Electricity Prices
October 10 - 14, 2005
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 26.41-455.70 9.74-258.04
Mid-Columbia 82-87 75-82.50
COB 86-94 80-85
NP 15 92-116.50 78.25-88
SP 15 91.75-117 76.75-88.50
Palo Verde 85.50-108 67-83.25

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.

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

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