On May 21, 2009, FERC released its “2009 Summer Energy Market Reliability Assessment” on energy expectations for the upcoming summer. Generally, FERC forecasted loads will be lower than the 2007 and 2008 summer seasons.

Lower Summer Prices Forecasted

Forward prices, in some regions, are lower then they have been in years, and about half that of 2008. Prices in New York and PJM are equivalent to 2004 prices, while in the West, SP-15, Mid Columbia and Palo Verde are at 2002 levels. Staff attributes this decrease in price to a weaker market affecting load and fuel prices.

High Gas Inventories and Low Prices

Fossil Fuel prices are 50 to 80% lower this year then last, with bid week pricing averaging less than $4/MMBtu. However, FERC has recently seen a slight reversal in this trend.

Oil and coal prices have declined from their 2008 levels while inventories have increased. U.S. crude oil stocks are up 14% from last year’s levels and electric generator coal stockpiles are 17% above last year’s levels. In addition, natural gas supplies are 23% above the five year average with reported storage levels of 2,013 Bcf. The demand for gas has not gone down due to lower gas prices. In fact, demand for gas to fuel electric power plants has increased because of competitive gas prices.

FERC is expecting a reemergence of imported liquefied natural gas (“LNG”), which has already doubled compared to that of last year. Lower worldwide demand and the U.S.’s ability to absorb excess LNG explains why LNG imports are expected to increase.

Wind Generation Projection Increase

FERC is forecasting on-peak average capacity to increase 21.5% from 2008 levels and predicts on-peak capacity will reach 15.2% of name plate capacity this summer. NERC’s Summer Assessment projects a total nameplate capacity across the nation at 29,945 MW. Regions are projecting an increase in transmission congestion due to this increased capacity and some report the need of additional ancillary services, such as operating reserves.

Warmer Summer Predicted on the Coasts

The National Oceanic and Atmospheric Administration has predicted a warmer than usual summer on the East Coast, while other agencies forecast normal temperatures. There is a consensus among agencies that the West will experience a warm summer.

Hurricane season is forecasted to be less active than normal. Additionally, hurricane season should not have as much effect on supplies compared to last summer because of the geographic diversification of gas production. The gas flow from the Rockies, coupled with flow from Texas and Louisiana to the East, should limit the effect of hurricanes in the Gulf.

Market Oversight Monitoring Developments

The Office of Market Oversight has identified several areas that will be monitored this summer.

  • The California ISO transition to Market Redesign and Technology Upgrade will continue to be monitored. Market Oversight has detected intermittent price spikes in the real time market and plans to monitor the situation closely.
  • In March, FERC approved the inclusion of energy efficiency as a resource, and in May, PJM included this as a resource in its forward capacity auction. Initial projections indicate energy efficiency projects will account for 10% of demand resources cleared.
  • The Rockies Express Pipeline first phase has had an impact on the balance of gas supplies, transportation and consumer costs in the Rockies, Midwest, Southwest, and California. The second phase will connect Western and Eastern Markets with the possibility of displacing gas from the Gulf. Staff has seen indications of market adjustment to the new capacity.

The FERC’s full report is available at: http://www.ferc.gov/market-oversight/mkt-views/2009/05-21-09.pdf.