Western Price Survey
November 11, 2005
The continuing high cost of natural gas and the swift approach of the winter heating season have generated a lot of activity in the hallways of both state and federal regulatory agencies in the past month. This week, Congress got into the act as well, taking issue with the large profits reaped primarily by major oil companies during the third quarter of the year.
Closer to home, the independent Market Surveillance Committee that advises the California Independent System Operator has expressed concern that the high price of natural gas may negatively effect the state's ability to maintain electric reliability. In order to stave off that possibility, the MSC this week recommended that the Cal-ISO's $250/MWh bid cap be increased to $400/MWh.
"Rather than wait for natural gas prices to exceed some pre-specified value before increasing the bid cap, we believe that the likelihood of substantially higher natural gas prices during the winter of 2005 is sufficiently high to justify raising the bid cap at the present time," said the committee in a report to the ISO.
A major concern expressed by the MSC is that the current cap in California, coupled with high spot prices elsewhere in the West, may provide suppliers with a disincentive to offering their energy into the state's spot market. "From the perspective of short-term reliability, it is crucial that the West-wide bid cap exceed the variable cost of the higher cost units needed to meet the demand peaks in California," emphasized the committee. The Cal-ISO Board of Governors may take up the bid-cap issue at its next meeting on December 15.
In the meantime, day-ahead power prices continued to track the ebb and flow of natural gas prices.
The Northern California peak-power price ranged from 65 mills to 71 mills/KWh on Monday. By midweek the price had bumped up to 82 mills/KWh in response to an uptick in the price of natural gas. Off-peak power opened the week at about 54.25 mills/KWh, but was moving for as much as 66 mills/KWh on Thursday, the last trading session of the week.
The week's trading schedule was skewed on account of Friday's Veterans' Day holiday. With the Western markets closed on Friday, the trading schedule was pushed up by a day.
Peak-time power south of Path 15 attracted between 61 mills and 79.25 mills/KWh, moving from low to high over the course of the week. The trajectory of nighttime power prices followed suit, starting at a low of 52 mills/KWh on Monday and closing on Thursday for as much as 66 mills/KWh.
Mild weather and ample supplies kept the cost of power in the Southwest below levels recorded in both California and the Northwest. Palo Verde peak power attracted between 53 mills and 66.25 mills/KWh this week. Off-peak power at the hub cost between 44.50 mills and 56.50 mills/KWh.
Peak-time power at Mid-C traded for a range of 59 mills to 74 mills/KWh this week, while off-peak power at the Northwest hub changed hands for between 55.50 mills and 62 mills/KWh.
At the California-Oregon border, daytime power cost as much as 77.50 mills/KWh on Wednesday before closing out the week between 73 mills and 74.50 mills/KWh. Nighttime power prices at COB trailed by about 10 mills/KWh throughout the week.
Also this week, Cal-ISO released its final report assessing the events of August 25, when the Pacific DC Intertie was suddenly taken out of service by the Los Angeles Department of Water & Power. The loss of transfer capacity between California and the Northwest forced the grid manager to call on market participants to shed 1,750 MW--approximately 950 MW of firm load and 806 MW of interruptible load. The situation that led to the load shedding was also greatly exacerbated by a weather forecast for that day that significantly underestimated the peak temperature in Southern California.
The Cal-ISO report did not illuminate the technical details of why the PDCI tripped or why the ISO was unable to get anyone at LADWP to answer the phone subsequent to the event. The grid manager did emphasize that it may have been able to avoid forcing firm load to lose power had there been better coordination between the two control areas.
Tactfully put, Cal-ISO said that " in the area of communication between control areas, the Cal-ISO believes there is an opportunity for improvement between the Cal-ISO and LADWP." [Shauna O'Donnell].
Gas Costs: Who Knows What the Future Holds?
A hefty injection of natural gas into underground storage facilities led to the swift sinking of the price of the commodity on the spot market on Friday. One could not be faulted for doing a double-take at the sight of $3.95/MMBtu listed on indicies that day for gas delivered to the Southern California border.
The Energy Information Administration's November 10 Weekly Natural Gas Storage Report said that 61 Bcf of gas went into underground storage the week ending November 4, more than double the quantity injected the week before. Underground reserves in the West, listed as 439 Bcf, are 13.4 percent above the five-year average stored amount. The large buildup and mild weather in the eastern half of the country deflated the spot-market price. All trading hubs reported a drop of well over $1/MMBtu from Thursday's price.
Before tanking on Friday, gas cost between $6 and $7.50/MMBtu at Topock during the week. Permian Basin gas prices also closed out the week with a precipitous drop, bottoming out at $4/MMBtu. On Monday, gas at the producing basin traded for between $5.60 and $6.45/MMBtu and topped out at $7.11/MMBtu on Thursday [S. O'D.].
Archives of the Western Price Survey for the past year are also available online.
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