On April 15, 2010 the Division of Energy Market Oversight from the Office of Enforcement presented their State of the Markets Report 2009 (the “Report”) at the FERC monthly meeting. The report focused on five areas:
1. Adjustments in the industry due to the global recession;
2. New trends in the gas industry;
3. New generation;
4. Changes at Regional Transmission Organizations (“RTOs”); and
5. Decreases in congestions costs.
In terms of adjustments and trends, the Report primarily focused on prices and demand. FERC Staff noted that natural gas prices, which began 2009 at historically low levels, continued to decrease. Gas demand for the year remained steady despite a 5.5 percent increase in demand for gas for electric generation. FERC Staff concluded that this increase was offset by the decrease of natural gas demand in residential, commercial, and industrial markets. Meanwhile, the demand for electricity dropped by 4.2 percent, marking the first time electricity demand has dropped in two consecutive years since 1949. FERC Staff noted that this decrease was largely affected by declines in the industrial sector, which is still being affected by the recession.
Since fuel prices and demand decreased, wholesale electricity prices also decreased. Despite the decrease in electricity prices, the low gas prices showed more plants moving towards gas to serve baseload service in 2009. As a result, gas production increased, even with fewer gas rigs. FERC Staff explained that this is due to the increase in harvesting gas from shale, and the large shale deposits are increasing estimates of the national gas supply.
In terms of new capacity, wind and gas generation dominated in 2009. These two fuels made up 84 percent of all new capacity in 2009. The Report also noted that the recession has greatly affected growth as 82 GW of capacity has been cancelled since the beginning of the recession. While one-fourth of the cancelled plans were wind plants, several wind projects are moving forward. By the end of 2012, FERC Staff predicted that there should be 85 GW of new wind generating capacity.
Meanwhile, FERC Staff highlighted several changes at RTO markets. For instance, the Midwest Independent Transmission System Operator began its new Ancillary Service Market. This new market appears to have lowered price volatility in the region. Additionally, the Southwest Power Pool integrated Nebraska utilities and the Missouri Public Service Commission to add cheaper coal and nuclear to their region in 2009. Finally, the California Independent System Operator launched their new nodal market, where their new product, the congestion revenue right (“CRR”), should combat high congestion costs in the region.
FERC Staff ended by showing that congestion fell in 2009. Each region showed a decrease in congestion below expectations, as compared to the financial transmission rights (“FTR”) or CRR markets. FERC Staff explained that the fall in congestion was primarily related to the congestion rights allocated to physical participants in the FTR markets.
The full version of the FERC Staff’s presentation is available at http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2009.pdf.