US FERC staff anticipates higher electric, gas prices this summer

Washington (Platts)--15May2014/551 pm EDT/2151 GMT

A hot summer with above-normal temperatures throughout most of the US will likely mean higher electric and natural gas prices this summer, according to the US Federal Energy Regulatory Commission's summer energy market and reliability assessment.

The assessment, presented by FERC staff at the commission's monthly meeting Thursday, projects particularly high prices for California this summer, made worse by drought and wildfires.

A drought in the region has lowered reservoir water storage levels in California to 66% of the historical average and limited snowpack to 33% of its normal level during this time of year, typically the peak of snow accumulation in the state. FERC staff said this could cut hydroelectric power generation in the state in half this summer. Further, state officials are considering the need for water restrictions that could limit the amount of water available to natural gas-fired power plants, staff said.

Some of the drought-related supply restrictions would be offset by more than 3 GW of additional generation, primarily from gas and solar, added to the California Independent System Operator since last summer, staff said.

High natural gas prices are expected in the state as summer gas demand is forecast to be "above normal," given the anticipated high temperatures, the need to replenish gas storage and less hydroelectric generation, staff said. Southern California may be forced to rely on higher cost local power generation as transmission limitations have restricted power imports into the southern part of Orange County and San Diego, staff said.

While the average natural gas futures prices for June, July and August seen this month are higher than those as of last May in most US regions, Southern California and Northern California are seeing the highest jumps, up 97 cents/MMBtu from the May 2013 average futures price for the summer months and $1.23/MMBtu, respectively, staff said.

Staff noted that futures are not a forecast of actual prices, but said they are a signal of market expectations that higher prices are coming this summer.

Electric prices could also rise this summer if temperatures are extreme, staff said, as electricity prices are sensitive to summer weather conditions. Prolonged heat waves can trigger generation and transmission outages that could put further pressure on the price, staff said.

Forecasts by some at the National Weather Service for a possible weak to moderate El Nino this summer could offset some electric and natural gas price increases as it would moderate temperatures and result in a wet and cool summer for the central and eastern US, staff said.

FERC staff overall agreed with the North American Electric Reliability Corp.'s annual summer assessment released Wednesday, which found that the electricity sector's increasing reliance on natural gas is raising reliability concerns for the coming summer.

NERC and FERC said in their assessments that all areas are expected to have enough power resources to meet peak demand during this summer, including the Electric Reliability Council of Texas, about which NERC in the past had raised resource adequacy concerns. Both assessments projected that more than 2 GW of new gas-fired generation would be in place by the summer peak in August.

--Jasmin Melvin, jasmin.melvin@platts.com
--Edited by Katharine Fraser, katharine.fraser@platts.com

http://www.platts.com/latest-news/natural-gas/washington/us-ferc-staff-anticipates-higher-electric-gas-21630828